Records: City of Marion paid double what company did for same airport land on same day

MARION — On the same day in 2015, the city paid an aviation company more than twice as much per acre for a slice of Marion Airport land than the company paid the original owners for it hours earlier.

As plans continue to evolve for the future of the small airport, and Marion receives funding from the Iowa Department of Transportation to help, some are questioning not only that transaction two years ago but also the city's direction in airport planning since, according to documents and City Council records.

The city did not obtained appraisals on the land in question before buying it; didn't seek proposals from other companies interested in operating the airport before making a deal with a newly formed limited liability corporation; and later distributed an inaccurate memo from City Manager Lon Pluckhahn recapping the purchase when questions arose.

In an interview, Pluckhahn said he stands by the property's purchase.

'All of this was done in full view of the public,' he said. 'I know there are people who think I'm getting kickbacks. I've told them, if you feel that, then you hire an accounting firm and I'll give them full access to all of my financial transactions. It's not my responsibility to pay for that to prove to you that I didn't do anything wrong.'

A principal with operator LuxAir Aviation said the arrangement, at least initially, is a money loser and that the company has heavily invested in improving an airport vital to the city.

'Somebody had to take on the burden,' said real estate developer and pilot Jeff Witter, who helped form the aviation company. 'No businessman, unless he loves flying and is an idiot, is going to say, 'Wow this is a great opportunity to make some money.' We made just under a million in improvements we needed to spend to get it close to where it needs to be.'

CITY GETS INVOLVED

For years, Perry and Jan Walton owned and operated the Marion Airport. In 2014, Perry Walton's health began to deteriorate.

Some residents and longtime airport users came together to try to keep the airport running and financially viable, said Witter, who was part of that group.

Witter — who also owns Genesis Equities, a real estate development company, and Abode Construction — said he approached the city in 2014, wondering if officials would be interested in full or partial ownership of the airport land.

If a partial ownership deal was made, Witter said, Genesis Equities would help maintain and run the airport.

If the city were to own the entire airport — similar to airports run by the cities of Monticello and Independence — more federal funding streams could be available for construction and upkeep.

A factor appealing to the city was that the Marion Enterprise Center, a 184-acre business park, is west of the airport land. If improvements were made to the airport and traffic increased as a result, more people could access the center, Pluckhahn said.

'There was a strong sense with the City Council that if we didn't step in and do something, the airport was going to die,' he said. The airport 'was something we always looked at as a potential asset. When you're marketing business parks or industrial parks, you're always looking for something to set them apart.'

But the City Council at the time was not interested in owning the full airport, he said. The least the city could own to qualify for Iowa DOT grants for improvements, he said, was the runway and a fixed base operator building.

But instead of Genesis Equities operating the airport, Witter and daughter Hannah Kustes created LuxAir Aviation LLC in March 2015. The duties of operating an airport were beyond the scope of what Genesis Equities could offer, Kustes said.

By May 2015, the City Council voted 5-0 to have Pluckhahn close on the deal to purchase land including the runway and FBO building. The council also directed Pluckhahn to secure a lease with LuxAir, specifying it would manage and maintain all airport facilities for 10 years at no cost to the city. LuxAir also agreed to match $150,000 in grants.

In 2016, an 11-member Airport Advisory Board was appointed to make recommendations about an airport layout plan to the City Council.

QUESTIONS ASKED

As recently as March 9, during a City Council meeting where members were to vote whether to adopt the comprehensive airport layout plan, lawyer Bill McCartan spoke.

McCartan, with the Cedar Rapids firm of Bradley and Riley, told the council he was representing the Atlas Limited Partnership, owned by Terry Bjornsen. Bjornsen, who declined an interview with The Gazette, owns land south of the airport.

McCartan said his client wanted to 'strongly encourage' the council to deny approval of the plan, according to a recording of the meeting.

He argued the city still would need to acquire more land to expand the runway so it could bring in more traffic, yet an expanded airport would decrease the developable value of nearby land.

And in a memorandum to the council, also provided to The Gazette, McCartan asserted the city's purchasing of airport land gave LuxAir a 'windfall' profit.

'The city has entered into a transaction with the airport developer that is unbelievably one-sided and favorable to the developer,' he said at the council meeting.

He wasn't the only one to ask questions about the airport land deal.

PURCHASE OF LAND

Pluckhahn noted in a September 2016 memo to the council that he was approached by a member of the Airport Advisory Board, and that some council member were approached, too, about the same issue: the city's purchase of airport land.

'I thought I would provide this memo showing how the process unfolded,' Pluckhahn wrote.

Memo to Council-Airport Purchase by Gazetteonline on Scribd

The memo recounts the events that led up to June 1, 2015, when the airport land was split and purchased by LuxAir and a portion sold to the city.

'When I was asked by the advisory board member about it, the question was how Luxair ended up with 57 acres for $1.33 million while the city paid $1.67 million for 26 acres,' Pluckhahn wrote. 'First, Luxair did not acquire 57 acres.'

But documents from the Linn County Recorder's Office show that on June 1, 2015, Jan Walton sold two parcels, including the airplane hangars, to LuxAir Aviation for a total of $1,355,300. Linn County Assessor's Office records show the two lots equal 52.57 acres.

A June 1, 2015, real estate transfer record made that afternoon shows that the first lot, of 26.13 acres including the FBO building and runway, was purchased by the city of Marion for $1.67 million. That comes to $63,911 paid per acre.

Declaration of value by Gazetteonline on Scribd

This means the city bought roughly half the land LuxAir purchased for more than the price LuxAir paid for it all.

Asked about the memo, Pluckhahn acknowledged the error in the description.

'The memo, unfortunately, had some inaccuracies,' he said. 'I was getting questions from a bunch of different sources, and I was trying to answer all of them. Some of them were being relayed to me second- and third-hand.'

But Pluckhahn said he supports the purchase, which the council had directed him to close.

Because the land was re-platted in the transaction, 'it's trying to go in and judge something on values split and land transactions that didn't exist before the city agreed to enter into the land transaction.'

As for the price paid per acre, Pluckhahn said he was not able to immediately see what LuxAir paid because that purchase was a private transaction.

Cities are not required to appraise land before it is purchased, he said. However, the city is required to pay for land at the best-valued price.

An appraisal for Marion Enterprise Center land directly west of the airport came back at $80,000 per acre, and Pluckhahn said that price was used to determine the market value of the airport land nearby.

'The city has an obligation to make sure they are paying highest-use value for properties. We are not like a typical purchaser … that wants to negotiate down for the lowest price you can get,' he said.

LUXAIR INVESTS

Witter and Kustes said they don't understand why LuxAir is characterized as receiving a 'windfall' for the purchase of the land.

'The lease is worth far more than the city paid for,' Kustes said. 'We're mowing the grass, doing the repairs, keeping the lights on, that's all stuff the city would usually have to pay for. They have zero dollars as far as operational expenses.'

LuxAir has built a new building and fueling station, put down new gravel and asphalt and made other improvements, Witter said.

He said he hopes that by the midpoint of the 10-year lease, LuxAir starts making more money.

In order to do that, fuel sales from more traffic through the airport need to increase, and Witter hopes there are private users wanting to build a hangar on the land that would provide another revenue source.

There currently are only two hangars on LuxAir property that the company can gather much rent from.

'I don't want to whine because it's the agreement we made, but it still loses a lot of money. We're just providing really a public service that a city would provide. The private part is a long way from viable,' Witter said. 'We're hoping for the growth. The city of Marion deserves this. This helps Cedar Rapids and Hiawatha, too. Most businesses are looking for general aviation and commercial aviation' capabilities.

FUTURE IMPROVEMENTS

The city already secured three grants from the Iowa DOT totaling $105,325 to improve infrastructure at the airport.

Pluckhahn said the city is waiting to hear from the Iowa DOT in August to see if it is awarded a grant for about $430,000.

The grant would help widen and rehabilitate the asphalt runway from 26 feet wide to 50, allowing larger planes.

If successful in the first project, Pluckhahn said the city could then discuss lengthening the runway from its current 3,775 feet to 4,200 feet.

However, that would entail purchasing more land, Pluckhahn said.

l Comments: (319) 368-8516; makayla.tendall@thegazette.com