Are Hangars a Good Investment? An ROI Framework for Institutional Allocators

Abstract

1. Introduction

A buyer takes delivery of a new business jet and then joins a waiting list for somewhere to park it. At the busiest business aviation airports, hangar space capable of housing current long-range aircraft is effectively sold out. The airplane exists. The real estate to shelter it does not.

For an investor, a durable shortage of something creditworthy tenants must have is the beginning of a serious inquiry. The general aviation industry delivered $35.7 billion of new aircraft in 2025, up 14.6 percent on 2024, including 854 business jets, an increase of 11.8 percent (General Aviation Manufacturers Association 2026). Each of those aircraft needs to be housed. A 2023 survey of the Aircraft Owners and Pilots Association's Airport Support Network volunteers at all public-use airports in Pennsylvania found that 71 percent reported a shortage of individual hangars and that 55 percent of airport managers had land on which to build more but lacked the capital to do so (Ginter 2023). That is one state rather than a national sample, and it is an illustration of the pattern rather than a measurement of it. An earlier survey by the same association found that 71 percent of airports surveyed carried a hangar waiting list (Tulis 2021).

This paper takes the allocator's question literally. It builds a return model, stresses it, benchmarks it against what core real estate has actually delivered, and then does the thing that hangar underwriting most often omits, which is to make the exit assumption consistent with the ground lease term the investor holds. The intended reader is an endowment or foundation investment committee, a family office principal, an insurance investment officer, or the consultant advising them.

The answer is a qualified yes, and the qualification is larger than the sector's promotional literature admits. Under conventional assumptions the asset produces low double digit levered returns from contracted income rather than from a bet on falling capitalization rates. Those assumptions embed a horizon most hangars do not have. On a ground lease with thirty years to run, making the exit term-consistent removes about 120 basis points of unlevered return and about 220 basis points of levered return. On a lease with twenty years to run it removes the case entirely. Underwrite the lease correctly and hangars earn a place on the menu of real assets. Underwrite it conventionally and the model will report a return the asset cannot deliver.

2. Is There an Asset Class Here?

2.1 The test the literature applies

Before returns, a prior question. Whether a property type has become institutional is an empirical question with an established method, and the method does not require a return series. Newell and Marzuki (2023) assess alternative sectors by examining institutional participation, the vehicles through which capital reaches the sector, and the sector's contribution to portfolio resilience, applying that test to healthcare, data centres, self-storage, student accommodation and infrastructure. They do not examine aviation property. Their earlier treatments of student accommodation and data centres established the framing that a sector becomes institutional when professional management, standardized documentation, index-eligible vehicles and repeat transactions arrive together (Newell and Marzuki 2018; Marzuki and Newell 2019).

On that test hangars are part of the way there. Three of the four conditions are now met. The fourth, measurement, is not, and Section 2.4 sets out how far short it falls.

2.2 The public pure play

Sky Harbour Group Corporation is the sector's first publicly traded developer devoted to home-basing hangars for business aircraft. Its annual report for 2025 records revenue of $27.5 million against $14.8 million in 2024 and $7.6 million in 2023, from nine operating campuses containing 61 hangars and 1,023,634 rentable square feet at 78.1 percent weighted average occupancy (Sky Harbour Group 2026a). Its report for the quarter ended 30 June 2026 shows eight campuses, 60 hangars, 1,042,340 rentable square feet, 83.7 percent occupancy and 85.8 percent economic occupancy, together with what the company described in its earnings release as its first quarter of positive operating cash flow (Sky Harbour Group 2026b, 2026c). That characterisation is the company's. The quarterly report itself shows net cash used in operating activities of $3.4 million for the six months ended 30 June 2026, so the release and the cash flow statement are describing different periods, and an allocator should read the statement.

The profit and loss requires care. Net income of $7.3 million for 2025 follows an operating loss of $28.0 million and is produced by a $35.9 million unrealized gain on warrants; adjusted EBITDA was negative $9.6 million (Sky Harbour Group 2026a). This is a company in construction, not a stabilized operator, and its reported earnings are not evidence about the economics of a stabilized hangar campus.

The financing is more instructive than the earnings. The company has $166.3 million of tax-exempt private activity bonds issued in 2021 at coupons of 4.00 to 4.25 percent, $150 million of subordinate bonds issued in February 2026 at a 6.00 percent coupon, and a term loan facility with a commercial bank swapped to an effective fixed cost of approximately 4.73 percent for five years (Sky Harbour Group 2026a, 2026b, 2026f). The weighted average rate on loans payable and finance leases, which excludes the bonds, was 7.53 percent at the end of 2025 against 8.39 percent a year earlier. Tax-exempt bond financing of hangar development, at scale and with public disclosure, did not exist in this asset class a decade ago.

2.3 Private capital

Private capital has moved in parallel, and mostly through the fixed base operator channel that controls much of the hangar inventory at larger airports. Table 1 sets out the transactions on the public record.

Source: Blackstone (2021); Air Charter Service (2021); Macquarie Infrastructure Corporation (2021a, 2021b); SomeraRoad (2024); SR Aviation Infrastructure (2025, 2026); Bridger Aerospace Group Holdings (2026); Bain Capital (2026); Apollo Global Management (2026).

Two features of the table matter more than the headline numbers. The pace has not slowed: four of the eight events fall in the twenty months to September 2026. And the buyers describe the asset in infrastructure terms rather than in real estate terms. The August 2026 release describes the target as providing "mission-critical infrastructure including aircraft fueling, hangar leasing and other essential aviation services, supported by long-term airport concession agreements" (Apollo Global Management 2026). In the January 2026 transaction the buyer described the target as operating "at attractive, capacity-constrained airports," and the target's own chief executive said the plan was to invest "across the existing network to meet the growing demand for aircraft hangar storage" (Bain Capital 2026). The second quotation is the seller-side management view rather than the acquirer's, which is worth noting because the two parties have different reasons to say it.

The precedent for this path is well established. Nareit observes that many of today's specialty property types were once fragmented markets with limited institutional ownership, and that more than half of REIT market capitalization now sits in what were once new and emerging sectors (Nareit 2026). Data centers were added to the FTSE Nareit global sector classification in 2019 and cell towers in 2021 (Mattson-Teig 2022). Self-storage followed the same arc a generation earlier.

2.4 What is still missing

The condition that is not met is measurement, and its absence is more complete than most sector commentary acknowledges.

The National Council of Real Estate Investment Fiduciaries publishes property type subindexes for industrial, office, residential, retail, self storage, seniors housing and a residual other category; it publishes no aviation, airport or hangar property type, and the composition of the residual category is not decomposed publicly (National Council of Real Estate Investment Fiduciaries 2026a, 2026c). No broker capitalization rate survey covers the sector. No peer-reviewed study reports hangar capitalization rates or hangar returns. There is accordingly no hangar return series anywhere, and no correlation between hangar returns and any other asset class has ever been estimated.

The practical consequence is visible in working appraisals. In a market value appraisal of a hangar prepared for a private owner and filed with a state board of regents, the appraiser states that he "didn't identify sale of leased hangars to establish of an overall capitalization rate" and therefore derived the rate from band of investment and debt coverage components instead, reaching 8.64 percent and 8.93 percent respectively (Elkhorn Appraisal Services 2023). That is a single small asset and those are built-up rates rather than market-extracted ones, which is exactly the point.

What does exist is a small number of disclosed prices, and one of them yields more than a price. The Bozeman sale and leaseback of October 2025 transferred three hangars totalling approximately 120,000 square feet of hangar and office space for gross proceeds of $49.3 million against a combined net book value of $30.0 million, which is roughly $411 per square foot (Bridger Aerospace Group Holdings 2026).

The seller is a public company, and it had to record the leaseback. Its accounts disclose a right-of-use asset and lease liability of $28.0 million recognised on this transaction, a stated lease term of ten years, and a weighted average discount rate on operating leases of 8.0 percent. Two routes lead from those figures to an approximate rent. Treating the $28.0 million liability as the present value of a ten-year annuity at 8.0 percent gives annual payments of about $4.17 million, which is 8.46 percent of the $49.3 million price. Alternatively, the Bozeman leases are 88.8 percent of the company's total operating lease liability, and 88.8 percent of its disclosed 2026 operating lease payments of $4.723 million is $4.19 million, which is 8.50 percent of the price. Flexing the discount rate between 7.5 and 8.5 percent moves the first estimate to a band of 8.27 to 8.66 percent.

So a disclosed hangar transaction implies an initial yield of roughly 8.3 to 8.7 percent. Every caveat has to travel with that number. It is a single-tenant sale and leaseback to a small-cap wildfire aviation operator rather than a diversified campus; the lease liability is measured at the lessee's incremental borrowing rate, which is not the buyer's capitalization rate; escalation within the term would put Year-1 rent below a level annuity; and the ground leases were terminated and reassigned in the transaction, so the buyer holds a leasehold of undisclosed remaining term.

Caveated to that extent, it is still the only extractable yield on a United States hangar transaction in the public record, and it sits within twenty basis points of the built-up rates the appraiser reached by an entirely different method. Three independent routes, a band of investment build-up, a debt coverage build-up and a disclosed leaseback, converge in a range of roughly 8.3 to 8.9 percent.

That convergence is the most useful single fact in this section, and it is uncomfortable, because the model in Section 4 assumes a going-in rate of 6.75 percent. An allocator should read that assumption as potentially 150 to 200 basis points too tight, and Section 4.3 stresses it accordingly. The honest statement is not that no hangar yield can be observed. It is that one can be approximated, from one transaction, and it is materially wider than the sector's own modelling convention.

An allocator should read Section 4 of this paper with that in mind. Every model in this sector, including this one, is built from assumptions rather than calibrated to a body of observed transactions, and any paper that reports a hangar capitalization rate as an established market fact is reporting something that has not been measured.

3. What the Investor Is Buying

3.1 The lease, and what the filings actually say

Institutional hangar leases are structured as gross or triple-net, with tenants covering insurance, taxes, common area maintenance and utilities under the latter. The public filer states that "[b]ase lease rents vary by location, but substantially all leases feature annual rent escalation," that "[t]he tenant leases generally do not have early termination options," and that "we expect renewals to be reset to prevailing fair market value" (Sky Harbour Group 2026a).

Three details in those filings are worth an allocator's attention, because the sector's marketing material states the position differently.

First, the index is not in the filings. The words "CPI" and "Consumer Price Index" appear nowhere in the annual report for 2025 or the quarterly report for the period ended 30 June 2026. The lessor note in both excludes from its maturity table "rental escalations that are not fixed," which implies an index without naming one. Management describes the mechanism on earnings calls, stating that "the multiyear tenant leases feature annual escalators of CPI," with a floor that "used to be" 3 percent and "[t]oday ... is a floor of 4 percent" on new leases (Sky Harbour Group 2026e). The company’s own second-quarter disclosure states the position more usefully than any of this, and it separates the two effects the section is about: a 19 percent trailing twelve-month re-lease escalation across the portfolio, "excluding typical annual escalations of CPI with a floor of 4%." Contractual indexation and re-leasing are doing different work, and the larger number is the one that is not in any lease. An investor underwriting inflation protection from the filings alone would not find it.

Second, the tenant leases are short. Original terms range from six months to fifteen years, and the weighted average lease term is "approximately 5.6 years and 2.8 years, in terms of contractual lease payments and rentable square footage, respectively" (Sky Harbour Group 2026a). At that tenor, an escalator is doing less work than the marketing implies and re-leasing is doing more.

Third, re-leasing has been favorable but the evidence is narrow. The 22 percent figure sometimes quoted is not in the filings. It was given on an earnings call and described there as "the average markup from the last year of the previous lease to the first year of the new lease" on "mature leases in Miami and Nashville," with management adding that it did not "want to say that we are going to see 22% escalations for the next fifty years" (Sky Harbour Group 2026e). That is one year of expiries at two campuses.

The tenant base is distinctive and is the strongest part of the credit story. It comprises corporate flight departments, charter and management operators, government entities and individual owners, with no single tenant accounting for more than 10 percent of revenue or rentable square footage, and it is a cohort whose ability to pay is anchored by the value of the aircraft being protected (Sky Harbour Group 2026a).

3.2 The scarcity, and its federal source

Supply cannot respond quickly, and the reasons are documented in federal policy rather than in anecdote. The national priority system for Airport Improvement Program funding assigns hangars and T-hangars a project type value of 8 on a 100-point scale, and only wash racks, parking, energy production and state block grant projects score lower (Federal Aviation Administration 2019a). The comparison has to be drawn within the right variable. The priority rating is computed from four separately scored terms, of which project type is one and project component is another, so a hangar's type score of 8 and a runway's component score of 90 are not two values of the same quantity. What the type scale establishes is where hangar work ranks against other work scored the same way, and on that scale hangars sit at the bottom. The program handbook makes hangars eligible only at nonprimary airports, only with nonprimary entitlement funds, and only after the sponsor demonstrates that its airside needs for the next three years are otherwise funded (Federal Aviation Administration 2019b). Airports cannot, in practice, build hangars with the federal money that builds everything else on the field.

Private construction faces its own constraint. The Turner Building Cost Index, a national measure of nonresidential construction cost, averaged 717 in 2005 and 1,485 in 2025, a factor of 2.07 on annual averages (Turner Construction Company 2013, 2025). The president of the National Air Transportation Association has made the same point about hangars specifically, that the cost of new hangar development is more than double what it was twenty years ago (Kariuki 2023). Much of the existing stock was built for a smaller generation of aircraft, a point developed in Section 6.2.

The result is that waiting lists at general aviation airports commonly run two to five years or longer (Kariuki 2023), the public filer describes airports with waiting lists that can exceed several years (Sky Harbour Group 2026a), and in constrained markets operators report no land left to build on at all, as at Teterboro, or fully absorbed new supply, as in South Florida and Los Angeles (Epstein 2023). One buyer's advisor described accessible hangar space in the New York region in February 2026 as "extraordinarily scarce" (SR Aviation Infrastructure 2026).

3.3 The land

Most institutional hangars are improvements built on airport authority ground under a lease. At expiration the improvements typically vest in the authority without compensation, and research covering airport general aviation leases found reversion clauses in every lease examined (Karaskiewicz 2024; Carter 2026b). The digest does not report which form of reversion predominates, so the frequency of the uncompensated form is not established by that source and is not asserted here. This single structural fact, examined in Sections 5 and 7, is what separates a good hangar investment from a poor one, and it is the reason the return model in Section 4 is presented twice.

4. A Return Model for a Stabilized Hangar Campus

The direct way to answer the title question is to underwrite a representative deal. The case below is intentionally conservative on the inputs a conventional model treats as the risks. It assumes a stabilized, already-leased asset rather than a development play, modest rent growth, and a higher exit capitalization rate than the entry rate, which is a headwind to returns.

4.1 Assumptions

Consider the acquisition of a stabilized Class A corporate hangar campus at a supply-constrained major-metro or reliever airport.

Source: Author's model.

The going-in capitalization rate is an assumption and not an observation. As Section 2.4 established, no published series exists from which a hangar rate could be drawn, and 6.75 percent sits between the trailing appraisal rate on core institutional property and the built-up rates an appraiser reached in the absence of comparables. The 6.0 percent debt cost is consistent with what the one public borrower has actually paid on senior and subordinate issues. The escalation assumption is below the 4 percent floor management describes on new leases and below the index-plus-floor structure, which makes it conservative if the leases are as described and appropriate if they are not.

4.2 Base-case results

Source: Author's model. Levered figures assume interest-only debt at 6.0 percent; income yields are cash-on-cash. Sale at Year 10 on forward net operating income at a 7.00 percent cap rate, net of 1.5 percent costs.

Two points deserve emphasis. The return is driven by contracted income and its escalation rather than by a bet on falling capitalization rates, which is the opposite of the office and multifamily playbook of the last cycle. And the current yield rises every year as escalated rents step up, so the cash return in Year 10 is materially higher than at entry. For a long-horizon holder, that growing income is the point.

4.3 Sensitivity to the conventional variables

Source: Author's model, holding all other assumptions constant. Figures are levered ten-year internal rates of return.

Returns hold up across this grid. The harshest cell, 75 basis points of exit expansion paired with 2 percent escalation, still returns 10.0 percent levered, and unlevered returns across the same grid range from 7.9 to 10.9 percent. That robustness is the result most often reported in support of the sector, and it is the result Section 5 shows to be conditional on something the grid does not vary.

4.4 Development economics, for contrast

The base case is a core, income strategy. Sponsors taking construction or lease-up risk underwrite to higher targets. The public filer's management has set out illustrative stabilized unit economics for a future campus of $40 per square foot in rent and $5 in fuel margin, less $9 per square foot of operating expenses, leaving $36 per square foot of net operating income, and has described hard costs below $250 per square foot as the threshold at which "the number of airfields on which you can get a double-digit yield on cost goes up dramatically" (Sky Harbour Group 2026e).

Those are illustrations of a future campus rather than results, and an analyst on the same call put the objection directly, noting that the most recent feasibility study showed net operating income around $20 per square foot for both obligated groups and that only two properties carried rent above $45 per square foot. Management's answer was that the illustration reflects better airports than the existing portfolio. Asked for the internal rate of return or yield on cost actually achieved on the first obligated group, the chief financial officer declined to give one, conceding that "the yield on cost at the outset is not going to be what we would hope for our campus" and deferring the calculation to the completion of that group (Sky Harbour Group 2026e). No target yield on cost, stabilized return or capitalization rate appears anywhere in the company's filings.

5. The Exit Assumption Nobody Varies

Every figure in Section 4 depends on the terminal value, and the terminal value in a conventional model is computed by capitalizing forward income in perpetuity. That is the right method for a fee asset. It is the wrong method for a hangar, because the buyer at Year 10 does not acquire a perpetual claim. It acquires whatever is left of the ground lease.

5.1 Making the exit term-consistent

A claim that ends after N years with no terminal payment is worth a computable fraction of an otherwise equivalent perpetual claim, and that fraction falls convexly as the term runs down (Carter 2026b). Applying it here requires no new assumptions, only internal consistency: if the going-in price of 6.75 percent reflects the term held at acquisition, then the exit price must reflect the term the buyer inherits, discounted at the same rate.

Table 5 solves for the net discount rate implied by a 6.75 percent going-in capitalization rate at each remaining term, then prices the Year-10 exit at that same rate with ten fewer years to run.

Source: Author's model, holding the Table 2 assumptions constant other than the exit capitalization rate.

Three results follow.

The base case is a fifty-year lease in disguise. An exit at 7.00 percent against an entry at 6.75 percent is internally consistent only where roughly fifty years remain at acquisition. The 25 basis points of expansion the model called conservative is in fact the correct adjustment for a very long lease and an understatement for anything shorter.

At the term the model actually assumes, thirty years, the term-consistent exit is 8.25 percent rather than 7.00 percent, and the returns fall from 9.4 to 8.2 percent unlevered and from 12.8 to 10.6 percent levered. That is 120 basis points of unlevered return and 220 basis points of levered return removed by a correction that changes no operating assumption at all.

Below twenty-five years the arithmetic turns. At twenty years remaining the levered return of 5.5 percent falls below the unlevered return of 5.8 percent, because the asset no longer earns its cost of debt and leverage subtracts rather than adds. That crossover is not a stress case. It is what the base case becomes on a lease two thirds as long.

A financing constraint compounds the same effect over the same range. Lender standards for ground-leased collateral require the remaining term to outrun loan maturity by five to thirty years depending on the channel and the structure, and exclude renewal options the borrower does not control, so at some remaining term the buyer pool thins to cash purchasers and the applicable discount rate rises further (Carter 2026e). Table 5 holds the discount rate constant and therefore understates the effect at the short end.

5.2 A lease that actually ran out

The risk is not hypothetical, and an example sits inside the filings already cited. The public filer's 2025 annual report lists nine operating campuses, including one at Boeing Field with four hangars and 92,495 rentable square feet, 9.0 percent of the portfolio by area. Its ground lease with the county carried an expiration year of 2026, by a wide margin the shortest in a portfolio in which every other lease runs to 2044 or later. The campus appears in the 2025 annual report and does not appear in either quarterly report filed in 2026 (Sky Harbour Group 2026a, 2026b).

A campus can therefore leave a portfolio at the end of its ground lease, in the ordinary course, without a default, a casualty or a market event. That is the asset class working as designed.

5.3 The same correction on the way in

If the exit rate has to reflect the term surrendered, so does the entry rate. Two hangars of identical construction, occupancy and tenant quality, one on a lease with forty years to run and one with twenty, cannot be capitalized at the same rate, and the difference between them is computable from the same two inputs. Table 6 holds the discount rate constant at the level implied by a 6.75 percent rate on a fifty year lease and reports the rate that follows at each shorter term.

Source: Author's computation, holding the discount rate constant at the level implied by a 6.75 percent capitalization rate on a fifty year lease.

The ladder is worth comparing against practice. The appraisal literature on hangars identified remaining lease term as a driver of the capitalization rate and reported adjustments applied in the field across a range of roughly 25 to 300 basis points, without supplying a schedule or an empirical basis for one (Lindsey 2008a, 2008b). The computed adjustments run from 28 basis points at forty years to 229 at twenty, which falls inside that range across the span of terms most often encountered. Arithmetic reproduces the interval practitioners arrived at by judgment, and it says where within the interval a given asset belongs.

There is also external evidence for the shape, from outside aviation. Anderson, Sirmans, Sirmans and Smersh (2025) estimate the price of lease term on 8,293 United States single-tenant commercial transactions from 2000 to 2019 and find that capitalization rates "compress steeply with term initially but flatten substantially beyond 20 years." That is the ladder's profile: the step from twenty years to thirty is 142 basis points, the step from thirty to forty is 59, and the step from forty to fifty is 28. Their sample is a leased fee rather than a terminating leasehold, so the mechanism is rollover risk rather than reversion and their coefficients are not transferable to a hangar. The measured evidence on the leasehold side is closer to the point, and it has been published in a top economics journal. Giglio, Maggiori and Stroebel (2015) estimate the discount at which leasehold property trades against otherwise identical freeholds, by remaining term, on large transaction samples in the United Kingdom and Singapore. UK flats with 80 to 99 years remaining trade at about 16 percent below freehold, 100 to 124 years at 10 percent, 125 to 149 years at 8 percent, and 150 to 300 years at 3 percent; Singapore leases with 71 to 85 years remaining trade 24 percent below. Bracke, Pinchbeck and Wyatt (2018) reach the same shape on London residential leases.

Restating Table 6 as a discount to a perpetual claim makes the comparison direct, and the comparison is instructive precisely because the levels disagree. At the paper's own inputs the perpetuity multiple is 15.49 times, so the ladder implies discounts of 0.2 percent at 100 years, 0.7 percent at 80, 4.4 percent at 50, 8.2 percent at 40, 15.3 percent at 30, 28.6 percent at 20 and 53.5 percent at 10. UK housing shows a 16 percent discount at 80 to 99 years where the hangar ladder shows 0.7 percent.

The gap is not a contradiction and it has one cause: the discount rate. Giglio, Maggiori and Stroebel's estimates imply discount rates below 2.6 percent for 100-year claims, where the hangar ladder runs at a net rate near 9.65 percent. The higher the discount rate, the later remaining term begins to matter and the harder it bites when it does. A housing leaseholder should worry about a reversion eighty years out; a hangar investor at a 9.65 percent net rate should not, and should worry a great deal about one thirty years out. That is a useful result, it follows from the paper's own arithmetic, and it explains why term adjustments in aviation look nothing like term adjustments in residential ground leases.

What transfers from Anderson and coauthors is the finding that commercial buyers price remaining term, that they price it convexly, and that they treat the region around twenty years as the point where the pricing changes character. The ladder is an assumption about hangars; it is no longer an assumption about whether markets price term at all.

The same table prices an error. A buyer who applies a fifty-year rate to a thirty-year lease pays about 13 percent too much; applied to a twenty-year lease, about 34 percent too much. Neither error involves a mistake about the building, the rent roll or the market. Both follow from valuing a terminable interest as though it were not one.

There is a market price for the other side of this trade, and it says what a long term is worth. Safehold, the only listed ground lease investment trust in the United States, reported 172 ground leases at a cost basis of $6.6 billion with a weighted average lease term of 92 years on an extended-term basis, an annualised yield of 5.5 percent, and estimated unrealised capital appreciation of $9.8 billion against that basis (Safehold 2026). A 92-year weighted average term is a deliberate choice, and it points in a direction that matters to a hangar buyer. The institutional ground lessor writes terms long enough that the reversion is worth close to nothing to the tenant and close to everything to the lessor, then carries the difference as unrealised appreciation. On the ladder in Table 6, a 92-year term sits where the term adjustment is under a basis point. On a thirty year term it is 142 basis points wide. The lessor is on the flat part of the curve by design, and the hangar investor is usually not.

6. Benchmarks and Structural Support

6.1 What core real estate actually returned

A return estimate means little without a benchmark, and the relevant benchmark is what institutional property has delivered rather than what it is expected to deliver.

Table 7. Institutional property benchmarks, periods ended 30 June 2026.

Source: National Council of Real Estate Investment Fiduciaries, NPI press release of 25 July 2026 and NFI-ODCE Snapshot Report for the quarter ended 30 June 2026. NCREIF publishes quarterly and one-year NPI returns in its public releases; multi-period NPI series sit behind member access and are not reproduced here.

The comparison therefore has to run against the open-end core fund series, which does publish multi-period returns. The term-consistent unlevered return of 8.2 percent on a thirty year lease is roughly 357 basis points above the trailing ten-year NFI-ODCE return gross of fees, and roughly 448 above it net of fees. That is a meaningful premium and it is a defensible one for an asset with no liquidity, no index, no return series and a terminal date.

The conventional unlevered return of 9.4 percent is roughly 477 basis points above the same gross benchmark. The difference between the two premiums is 120 basis points, and that 120 is the whole of the term correction. An allocator comparing a hangar proposal to core property should establish which of the two is being quoted, because the gap between them is larger than the spread most allocators would accept for moving one notch out on the risk curve.

The three-year column is the more sobering comparison. Core open-end funds returned negative 0.62 percent gross and negative 1.44 percent net over the three years to 30 June 2026. Any hangar underwriting that assumes stable exit capitalization rates is assuming something the adjacent core sector did not deliver over the period most recently observed.

One sub-index in the same report bears directly on the question in Section 2. Self storage, the closest indexed analogue to the hangar in operating profile, returned 6.8 percent over the year to 30 June 2026 across 1,246 properties worth $25.3 billion, which is 2.7 percent of the index by value. That is what an institutionalised niche looks like from inside the index: small, separately reported, and outperforming. The residual "Other" category, meanwhile, holds $25.2 billion across 161 properties. Whatever hangars are doing, they are not hiding in there.

6.2 Demand tied to a different economy

Hangar demand tracks corporate profitability, wealth formation and the value of executive time rather than office employment or consumer spending, and it tracks the physical size of the aircraft rather than the count.

The federal forecast records a United States active turbojet fleet of 16,835 aircraft at the end of 2024, estimates 17,385 for 2025, and projects average annual growth of 2.9 percent through 2046, the fastest of any fixed-wing category in the table against a small decline for fixed-wing piston (Federal Aviation Administration 2026). The utilization figure is more striking than the fleet figure: general aviation hours flown reached 29.0 million in 2024, the highest since 2000, with turbojet hours up 12.8 percent in a year in which the turbojet fleet grew 1.8 percent. Activity has continued into 2026, with North American business aviation flight activity up 4.3 percent year over year in July 2026, led by fractional operations at 10.0 percent (Wilder 2026).

The size effect is the part that bears on hangar obsolescence. The public filer reports, from fleet data, that the cumulative square footage of the United States business aircraft fleet grew 73 percent between 2010 and 2025, and that the square footage of larger jets grew 120 percent over the same period (Sky Harbour Group 2026a). Those are the company's own figures and should be attributed as such, but the direction is consistent with the delivery mix: Gulfstream, Bombardier and Dassault delivered 352 of the 854 business jets shipped in 2025, 41.2 percent of the units, and accounted for $20.1 billion of the industry's $31.0 billion in airplane billings, 64.7 percent of the value (General Aviation Manufacturers Association 2026). A fleet growing in footprint faster than in count needs newer, taller and wider hangars, and much of the legacy inventory cannot provide them.

6.3 Income that responds to inflation

Leases with index-linked escalation and floors of 3 to 4 percent, reinforced by pricing power from scarcity, deliver income growth that responds to inflation. The qualification from Section 3.1 belongs here: at a weighted average lease term of 5.6 years by contractual payments and 2.8 years by area, the escalator covers a short window and the repricing at renewal does most of the work. That is inflation responsiveness through frequent re-leasing rather than inflation linkage through contract, and the two behave differently in a weak market. An investor buying a long-duration inflation hedge should understand which one is on offer.

6.4 Operational simplicity

No common-area disputes, no residential turnover, no retail co-tenancy. Single-purpose buildings leased to creditworthy tenants carry low management drag, which preserves net returns. The offset is that a single-purpose building with one possible landlord and no alternative use is the definition of a specific asset, which is the classic condition for appropriable quasi-rent and the source of the ground lessor's bargaining position at renewal (Klein, Crawford, and Alchian 1978; Williamson 1985; Carter 2026a).

7. Underwriting the Lease

If a hangar investment fails, the ground lease is the reason. Because the improvements typically revert without compensation, a leasehold hangar is a wasting asset whose value declines toward zero as the lease runs down, and the decline is convex rather than linear (Carter 2026b). Five checks follow from that, and they precede the rent roll rather than following it.

Establish the horizon the buyer actually holds. Read every extension provision and count only those the tenant can exercise at a rent it can determine. Options exercisable at the landlord's discretion, and renewals subject to competitive bidding, do not extend the horizon. The public filer discloses both possibilities: that airport authorities "may choose not to renew a lease at all or to only renew the lease on terms that are unfavorable to us," and that "[a]t the conclusion of a lease, airport authorities may require us to participate in a bidding process to renew a lease" (Sky Harbour Group 2026a).

Read the surrender clause. Reversion without compensation sets terminal value at zero. A landlord election to require removal sets it below zero and the cost of removal belongs in the model.

Make the exit term-consistent. Table 5 is the method. An exit capitalization rate that does not widen with the term surrendered during the hold is not a conservative assumption; it is an omitted one.

Establish what a lender will do at the exit term, not the entry term. A ten-year hold on a twenty-five year lease delivers a fifteen-year asset to the next buyer, which is inside the range where institutional debt becomes constrained (Carter 2026e).

Do not carry the asset at cost. On a thirty year lease, a newly completed hangar is worth materially less than its depreciated replacement cost on the day it opens, for reasons that have nothing to do with how well it was built (Carter 2026b).

The other risks of the asset class are real but manageable through diversification and disciplined criteria. Resale liquidity is thinner than in mainstream property types, though the entrants in Table 1 are widening the buyer pool. Environmental exposure deserves specific diligence: two of the compounds in legacy aircraft firefighting foam became hazardous substances under the federal Superfund statute effective 8 July 2024, a designation reaffirmed in September 2025 (Environmental Protection Agency 2024, 2025), which makes a Phase I environmental site assessment and a review of the lease's environmental allocation clauses standard (Carter 2026g). Appraisal error is its own category, since non-specialist underwriting misreads reversion language, renewal options and true remaining term (Carter 2026f).

8. Portfolio Fit and Access

Hangars are a diversifying satellite rather than a core holding, and the case for sizing them small rests on what is not known about them as much as on what is. A target of roughly 2 to 5 percent of a real asset or alternatives sleeve, equivalent to well under 1 percent of total assets for most institutions, is consistent with the treatment given to sectors at a comparable stage of institutionalization (Carter 2026c, 2026d). That sizing should not be defended on a diversification statistic. No correlation between hangar returns and any other asset class has been estimated, because no hangar return series exists, and a diversification claim in this sector is at present a reasoned expectation from the demand drivers rather than a measured result.

Access can come through four routes. Direct ownership or a joint venture with an aviation operator gives full control and, for an insurer, real estate rather than equity capital treatment, though the capital charge on real estate is not favorable in absolute terms and requires a substantial excess return to compete with an investment grade bond on capital efficiency (Carter 2026d). A separately managed account suits mid-size investors. The public market offers liquidity but, in a single pre-stabilization developer with a construction-stage loss profile, carries a risk profile unlike the stabilized asset modeled here. Private funds and the fixed base operator platforms in Table 1 offer diversification at higher fees, and place the investor alongside sponsors underwriting the sector as infrastructure.

The income profile is what recommends the asset to a long-horizon holder. Endowments spent an average of 4.9 percent of assets in fiscal 2025, against 4.8 percent in fiscal 2024 (NACUBO and Commonfund 2026, 3). An institution earning a current cash yield above its spending rate can fund distributions from income rather than by selling appreciated positions, which is where illiquidity hurts most.

9. Limitations

The model in Section 4 is an illustration built on assumptions, and the assumption the result turns on cannot be tested. There is no published capitalization rate series for hangars, no transaction database covering the property type, and no peer-reviewed study of hangar returns, so the going-in rate is an assumption rather than an observation and the exit rate is derived from it rather than from market evidence. Readers who prefer different inputs should recompute rather than interpolate.

The term correction in Section 5 is arithmetic applied to those same assumptions. It establishes the direction and approximate magnitude of an error that conventional models make, and it does not establish what the market actually pays for remaining term on a hangar, because that relationship has never been estimated for this property type. The nearest estimate that does exist, on single-tenant net lease property, prices a landlord's rollover risk rather than a tenant's reversion, and confirms the shape without supplying the level (Anderson et al. 2025). A study regressing observed hangar capitalization rates on remaining ground lease term is the missing piece, and it is missing because the transaction data to run it is not collected.

The evidence on operating characteristics comes disproportionately from one company. It is the only public pure play, it is pre-stabilization and loss-making at the operating level, and several of the figures an allocator would want, including re-leasing spreads, the escalation index and any yield on cost, exist only in oral management commentary rather than in audited disclosure. A sector characterized from a single construction-stage filer is characterized narrowly.

The transactions in Table 1 disclose price in two cases out of eight and net operating income in none. They establish that institutional capital has entered and at what scale. They do not establish what the sector yields.

Finally, the diversification argument that supports a satellite allocation is unmeasured. The demand drivers differ from those of office, retail and industrial property, which is a reason to expect imperfect correlation, and expectation is not estimation.

10. Conclusion

Yes, for the right investor, in the right structure, with the right lease, and the third condition carries more weight than the sector's literature gives it.

The asset offers income-led returns, a growing cash yield, a creditworthy tenant base, and a supply constraint with a documented federal cause that will not resolve quickly. Institutional capital has reached the same conclusion, at increasing scale, in each of the last five years. Under conventional assumptions the strategy produces low double digit levered returns without any reliance on falling capitalization rates, which is more than can be said for most of what competed with it over the last cycle.

The correction matters as much as the case. A conventional model exits a leasehold hangar as though the buyer were acquiring a perpetual asset, and that single assumption is worth about 220 basis points of levered return on a thirty year lease and the entire investment case on a twenty year one. Below roughly twenty-five years of remaining term, leverage stops helping, because the asset stops earning its cost of debt. Two physically identical hangars, one with thirty-two years of remaining term and one with twelve, are not the same investment and cannot carry the same capitalization rate.

What an allocator should also take from this paper is what is not here. There is no index, no return series, no published capitalization rate and no correlation estimate for this property type. That absence is not a reason to avoid the sector; niche sectors are institutionalized before they are measured, and the return opportunity exists partly because the measurement does not. It is a reason to size the position accordingly and to do the diligence on the lease before the diligence on the building.

This paper is research and general information for professionals evaluating aviation real estate. It is not appraisal, investment, legal, or tax advice, and it does not create an engagement. Illustrative model figures are the author's own and are provided for education; they are not an offer or a valuation of any specific property.

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