Grounded Assets, Global Standards, Part II: Additional GIPS Compliance Frontiers

Abstract

This companion paper extends the analysis initiated in “Grounded Assets, Global Standards: GIPS Compliance Challenges in Airport Hangar Investment Performance Reporting” by identifying and examining eight additional areas of compliance friction that arise when investment managers attempt to report GIPS-compliant performance for airport hangar portfolios. Where the original paper addressed foundational issues (fair value determination, external valuation scarcity, composite construction, benchmark selection, component return decomposition, and the USPAP-GIPS interface), this paper explores second-order compliance challenges that emerge as hangar investment platforms mature and institutional capital flows accelerate.

The eight additional friction areas analyzed are: (1) appraisal smoothing and stale pricing bias, which is amplified in hangar markets by transaction opacity and appraiser anchoring; (2) carve-out complexity for multi-asset aviation portfolios where hangars are bundled with FBO operations, fuel infrastructure, and ground support equipment; (3) subscription line of credit and leverage treatment for closed-end hangar development funds; (4) the SEC Marketing Rule-GIPS interface, which creates dual compliance obligations for U.S.-registered investment advisers marketing hangar fund performance; (5) environmental contingent liability treatment in fair value determinations, given the fuel-handling and remediation exposure endemic to airport properties; (6) capital expenditure versus maintenance classification, which affects both return decomposition and fair value accuracy; (7) FBO business enterprise value separation and its implications for composite purity; and (8) OCIO portfolio integration challenges when hangar allocations exist within broader institutional mandates.

For each friction area, the paper identifies the specific GIPS provision at issue, analyzes why hangar properties create unique compliance challenges, and proposes practical solutions consistent with the Aviation Real Estate Performance Standards (AREPS) Protocol framework developed in the companion paper. The analysis draws on the 2020 GIPS Standards, the December 2025 Guidance Statement for OCIO Portfolios, the SEC’s March 2025 Marketing Rule FAQ updates, and the established real estate performance measurement literature.

1. Introduction: Beyond the Foundational Six

The companion paper to this analysis identified six primary areas of GIPS compliance friction for airport hangar investment performance reporting: fair value determination in Level 3 territory, external valuation scarcity, composite construction challenges, benchmark selection in a market without a dedicated index, component return decomposition with wasting-asset dynamics, and the USPAP-GIPS valuation interface. Those six friction areas represent the foundational compliance challenges that any firm entering the hangar investment space will confront immediately upon attempting to claim GIPS compliance.

However, as hangar investment platforms mature (as portfolios grow larger, fund structures become more sophisticated, regulatory scrutiny intensifies, and capital sources diversify), a second tier of compliance challenges emerges. These are not lesser challenges; several are arguably more technically demanding than the foundational six. They arise at the intersection of hangar-specific institutional characteristics and GIPS provisions that were designed for more conventional investment structures, creating compliance gaps that require creative but defensible solutions.

This paper identifies and analyzes eight such additional friction areas. Each section follows a consistent analytical framework: identification of the relevant GIPS provision, explanation of why hangar properties create unique challenges under that provision, assessment of the compliance risk if the challenge is not addressed, and proposal of a practical solution consistent with the AREPS Protocol framework developed in the companion paper. The analysis incorporates recent regulatory developments, including the March 2025 SEC Marketing Rule FAQ updates and the December 2025 GIPS Guidance Statement for OCIO Portfolios, that have direct bearing on hangar investment performance reporting.

2. Appraisal Smoothing and Stale Pricing Bias

2.1 The GIPS Provision

The GIPS standards require that all investments be valued at fair value, defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. For private market investments, including real estate, fair value must represent the firm’s best estimate based on current market conditions. The standards further require quarterly valuations for portfolios in composites presenting time-weighted returns, with external valuations at least annually for open-end fund structures. Implicit in these requirements is the expectation that valuations reflect contemporaneous market information rather than stale or anchored estimates.

2.2 The Hangar-Specific Problem

Appraisal smoothing, the tendency for appraised values to lag true market values due to appraiser reliance on historical data and anchoring to prior valuations, is a well-documented phenomenon in commercial real estate. The seminal work by Clayton, Geltner, and Hamilton (2001) demonstrated that appraisers valuing the same property in consecutive periods systematically anchor onto their previous appraised values, with Canadian appraisers in the Hamilton and Clayton (1999) study placing only 20 percent weight on current information and 80 percent on older evidence, resulting in an average one-year lag between appraised and true values.

Airport hangar properties amplify the smoothing problem through three mechanisms. First, transaction opacity is extreme: many airports generate a hangar sale only every two to five years, providing appraisers with minimal contemporaneous transaction evidence on which to update valuations. When comparable sales are scarce, appraisers rationally place greater weight on prior valuations, magnifying the anchoring bias. Second, the specialized nature of hangar properties means that comparable transactions from adjacent real estate sectors (industrial warehouses, for instance) require significant adjustments that introduce additional noise, further incentivizing reliance on prior hangar-specific valuations. Third, ground lease structures create a deterministic value decline as remaining term shortens, but appraisers may not fully capture the non-linear acceleration of this decline in quarterly internal valuations, particularly when no recent transaction confirms the magnitude of the lease-term discount.

The practical consequence for GIPS compliance is that reported returns for hangar portfolios may systematically understate both the mean and variance of true returns, exactly the finding documented by Edelstein and Quan (2006) for commercial real estate generally. For hangar portfolios, the effect is compounded by the asset class’s unique risk characteristics: the wasting-asset dynamic of ground leases, the regulatory risk from FAA grant assurance requirements, and the monopsony position of airport authorities can all shift value materially between valuation periods in ways that smoothed appraisals fail to capture.

2.3 GIPS Compliance Risk

The compliance risk is substantial. If hangar portfolio returns are systematically smoothed, the reported volatility will understate true risk, creating a misleading Sharpe ratio comparison against other asset classes in an investor’s total portfolio. For GIPS purposes, this means that the firm’s performance presentation, while technically using fair value estimates, may not satisfy the spirit of the standards’ requirement for returns that reflect contemporaneous market conditions. The problem is particularly acute when hangar investments are included in broader real estate composites alongside property types with more liquid transaction markets and less smoothing bias.

2.4 Proposed AREPS Solution

The AREPS Protocol should incorporate three anti-smoothing measures. First, mandatory appraiser rotation: consistent with Clayton, Geltner, and Hamilton’s (2001) finding that first-time appraisers use significantly more contemporaneous data than repeat appraisers, firms should rotate external appraisers on individual hangar properties at least every three years. Second, event-driven revaluation triggers: any material change in ground lease status, airport authority policy, FAA regulatory action, or tenant creditworthiness should require an interim internal revaluation regardless of the quarterly schedule. Third, supplemental disclosure of an unsmoothed return estimate, calculated using a desmoothing methodology adapted from the Fisher, Geltner, and Webb (1994) framework, presented alongside the appraised-value return to give investors visibility into the potential magnitude of smoothing bias.

3. Carve-Out Complexity for Multi-Asset Aviation Portfolios

3.1 The GIPS Provision

The 2020 GIPS standards reinstated the ability for firms to include carve-outs with allocated cash in composites, a provision that had been prohibited since the 2010 edition. Under the current rules, a carve-out is a portion of a portfolio that is by itself representative of a distinct investment strategy. Firms may allocate cash to carve-outs using a consistent methodology, but must create carve-outs from all portfolios managed to that strategy and must create a separate composite for standalone portfolios managed to the same strategy. The firm must also present the returns and assets of any standalone portfolio composite alongside the carve-out composite in the GIPS Composite Report.

3.2 The Hangar-Specific Problem

Aviation real estate investments rarely exist in pure-play hangar form at the portfolio level. Institutional investors typically acquire hangar properties as components of broader aviation platforms that include FBO operations, fuel infrastructure, ground support equipment, terminal buildings, and sometimes even air traffic management technology. Private equity funds targeting aviation infrastructure may hold hangars alongside jet card businesses, aircraft management operations, and airport concession agreements. Even dedicated aviation real estate vehicles may hold a mix of T-hangars, corporate facilities, FBO complexes, and MRO (maintenance, repair, and overhaul) buildings that serve fundamentally different market segments.

This structural reality creates an acute carve-out problem. When a firm wants to present hangar-only performance, whether to market a dedicated hangar composite or to include hangar returns in a real estate composite, it must carve the hangar component out of multi-asset aviation portfolios. The challenges are threefold. First, cash allocation to the hangar carve-out is inherently arbitrary: should cash be allocated based on the hangar’s share of total portfolio fair value, its share of income, or its strategic target allocation? Each method produces materially different returns, particularly in periods when FBO business value fluctuates independently of hangar real estate value. Second, shared infrastructure (aprons, taxiways, fuel systems, and utilities that serve both hangars and other aviation operations) complicates the clean separation of hangar-specific assets from the broader platform. Third, the FBO business enterprise value separation problem identified in the companion paper is amplified in the carve-out context because the business and real estate components must be disaggregated before the carve-out allocation can even begin.

3.3 Proposed AREPS Solution

The AREPS Protocol should establish a standardized carve-out methodology for multi-asset aviation portfolios. The recommended approach uses beginning-of-period fair value allocation for cash, consistent with the methodology described in the GIPS Explanation of Provisions in Section 3. Shared infrastructure should be allocated based on exclusive-use square footage ratios, with common-area costs allocated pro rata. The protocol should require that the carve-out methodology be disclosed in the GIPS Composite Report with sufficient specificity to allow investors to evaluate the reasonableness of the allocation. Where the FBO business enterprise value separation materially affects the carve-out return, the firm should disclose the allocation methodology and the sensitivity of carve-out returns to alternative allocation assumptions.

4. Subscription Line of Credit and Leverage Treatment

4.1 The GIPS Provision

The 2020 GIPS standards require that all returns be calculated net of discretionary leverage, that is, leverage taken at the investment manager’s discretion. For firms presenting money-weighted returns (MWR), the standards further require that if subscription lines of credit are used, firms must present since-inception MWR both with and without the subscription line of credit, unless the principal was repaid within 120 days using committed capital and no principal was used to fund distributions. Total firm assets, composite assets, and pooled fund assets must be calculated net of discretionary leverage.

4.2 The Hangar-Specific Problem

Closed-end hangar development funds, the primary vehicle through which institutional capital flows into ground-up hangar construction and value-add repositioning, routinely employ both subscription lines of credit and property-level mortgage debt. The subscription line allows the fund to deploy capital quickly when hangar development opportunities arise (permits, site approval, and construction contracts often require rapid commitment) without waiting for capital calls to be funded by limited partners. Property-level debt is used to optimize returns through leverage on individual hangar investments.

The compliance challenge is amplified by the construction timeline inherent in hangar development. A typical hangar development project involves 6-12 months of entitlement and permitting, 12-18 months of construction, and 6-12 months of lease-up. During this 24-42-month period, the subscription line may be drawn to fund construction costs well before capital is called from limited partners. The 120-day safe harbor in the GIPS standards was designed for quick-deployment situations, not for extended construction cycles. This means that most hangar development funds will be required to present dual MWR calculations, a significant reporting burden that requires the firm to track the timing and magnitude of both subscription line draws and capital calls at a granular level.

Moreover, the interaction between property-level mortgage debt and subscription line credit creates a layered leverage problem for GIPS reporting. The firm must calculate returns net of all discretionary leverage, but the distinction between discretionary and non-discretionary leverage is not always clear in the aviation context. Ground lease payments to airport authorities, for instance, function economically as a form of leverage (they are a fixed obligation that must be serviced before equity returns are generated) but are not classified as leverage under GIPS. This treatment is consistent but creates a presentation that may understate the true leverage exposure of hangar investments relative to fee-simple real estate.

4.3 Proposed AREPS Solution

The AREPS Protocol should require dual MWR presentation for all hangar development funds that utilize subscription lines of credit, with explicit disclosure of the average outstanding balance and duration of the subscription line relative to the capital call schedule. For property-level leverage, the protocol should require disclosure of both loan-to-value ratios and debt service coverage ratios at the property level, aggregated to the composite level. As supplemental information, the protocol should recommend presentation of a “full-obligation” return that includes ground lease payments as a quasi-leverage component, allowing investors to compare the total obligation structure of hangar investments against fee-simple alternatives. This enhanced disclosure would satisfy both GIPS requirements and the growing regulatory expectations under the SEC Marketing Rule for transparent leverage presentation.

5. The SEC Marketing Rule-GIPS Interface

5.1 The Regulatory Landscape

The SEC’s Marketing Rule (Rule 206(4)-1 under the Investment Advisers Act of 1940), effective November 2022, fundamentally modernized the regulatory framework governing how registered investment advisers advertise performance. The rule requires that gross performance be presented alongside net performance with equal prominence, restricts the use of hypothetical performance, and classifies any presentation of a subset of portfolio investments as “extracted performance” subject to specific disclosure requirements. In March 2025, the SEC staff issued updated FAQs clarifying that extracted performance may be presented on a gross-only basis provided that overall portfolio gross and net returns are shown with equal prominence, reversing the more restrictive January 2023 guidance.

GIPS Reports are generally considered advertisements under the Marketing Rule, creating a dual compliance obligation for firms that claim GIPS compliance and are also SEC-registered. The CFA Institute’s September 2023 guidance on reconciling the GIPS standards and the SEC Marketing Rule identified several areas where the two frameworks impose different requirements, particularly around the calculation of net returns, the treatment of transaction costs, and the required time periods for performance presentation.

5.2 The Hangar-Specific Problem

Hangar investment managers face three Marketing Rule challenges that are either unique to or amplified by the aviation real estate context. First, the extracted performance issue is pervasive: as discussed in Section 3, hangar investments are frequently components of larger aviation platforms, and any presentation of hangar-only performance from such platforms constitutes extracted performance under the Marketing Rule. The March 2025 FAQ relaxation helps (firms can now show hangar-specific gross returns without calculating hangar-specific net returns), but the requirement to present overall portfolio gross and net returns alongside the extracted performance remains, and the “equal prominence” standard introduces presentation design constraints.

Second, the treatment of FBO business enterprise value complicates net return calculations. When a hangar portfolio includes FBO facilities, the management fees may be structured as a percentage of total assets under management, which includes both real estate value and business enterprise value. Calculating net-of-fees returns for the real estate component alone requires an allocation of the management fee between real estate and business enterprise, and the Marketing Rule requires that this methodology be disclosed and applied consistently. Neither GIPS nor the Marketing Rule provides specific guidance on fee allocation between real estate and business enterprise within a single portfolio.

Third, the SEC’s prohibition on misleading performance presentation creates heightened risk for hangar portfolios because of the ground lease term dynamics. A hangar portfolio may show attractive income returns while its capital value is systematically declining as ground lease terms shorten. Presenting only total returns without disclosing the income/capital decomposition could be deemed misleading under the Marketing Rule’s general anti-fraud provisions, particularly if the investor is comparing hangar returns against fee-simple real estate alternatives that do not have wasting-asset characteristics.

5.3 Proposed AREPS Solution

The AREPS Protocol should include a dedicated Marketing Rule compliance module that addresses the specific challenges of hangar performance presentation. This module should require: (a) clear disclosure of ground lease term dynamics and their expected impact on future returns; (b) component return decomposition (income, capital market, and lease-term amortization) in all advertisements that include hangar portfolio performance; (c) standardized fee allocation methodology for portfolios that include both real estate and business enterprise value; and (d) a reconciliation table showing the relationship between GIPS-compliant returns and Marketing Rule-compliant returns where the two frameworks produce different figures, particularly around the treatment of transaction costs.

6. Environmental Contingent Liability and Fair Value

6.1 The GIPS Provision

GIPS requires that all investments be valued at fair value, which must reflect the assumptions that market participants would use when pricing the asset. Under ASC 820 (U.S. GAAP) and IFRS 13, fair value measurements must incorporate the effect of asset characteristics that market participants would consider, including any conditions or restrictions on the asset. Environmental liabilities associated with real property are characteristics that market participants would factor into the exit price and must therefore be reflected in the fair value determination.

6.2 The Hangar-Specific Problem

Airport hangar properties carry environmental exposure that is qualitatively different from most commercial real estate. Fuel handling, de-icing operations, hydraulic fluid management, and decades of industrial aviation activity create soil and groundwater contamination risks that can give rise to remediation obligations of extraordinary magnitude. Airport ground leases commonly assign remediation responsibility to the tenant, and, critically for valuation purposes, many leases trigger a mandatory environmental assessment at lease expiration, with remediation costs deducted from any improvement reversion value or, in some cases, billed to the departing tenant.

The GIPS compliance challenge is that environmental contingent liabilities are extremely difficult to quantify for fair value purposes and, when quantified, can create dramatic valuation adjustments that appear inconsistent with the property’s income-generating capacity. A hangar generating stable net operating income may have an environmental liability that, if fully recognized, would reduce fair value by 20-40 percent. The timing of recognition is also problematic: the liability may not become apparent until Phase I or Phase II environmental assessments are conducted, which typically occurs only during transaction due diligence or at lease expiration. Between these events, the fair value determination must rely on probability-weighted estimates of environmental exposure, a Level 3 input layered on top of already-Level-3 real estate valuation inputs.

The companion paper’s case study of a corporate investor who purchased an FBO complex for $12 million with 15 years remaining on the ground lease, only to see the property sell for $6.5 million three years later when environmental remediation responsibilities stalled lease renewal, illustrates the magnitude of the risk. For GIPS reporting, the question is whether and when the environmental contingency should have been reflected in quarterly fair value estimates. The answer depends on when the firm had information sufficient to estimate the liability, a judgment call that directly affects reported returns.

6.3 Proposed AREPS Solution

The AREPS Protocol should require that environmental risk be explicitly addressed in every hangar fair value determination, with a mandatory disclosure of the firm’s environmental risk assessment methodology. The protocol should establish a tiered approach: (a) for properties with current Phase I or Phase II assessments identifying recognized environmental conditions, the estimated remediation cost should be reflected as a deduction from fair value; (b) for properties without current environmental assessments, a probability-weighted environmental reserve should be included based on the property’s use history, age, and fuel-handling characteristics; and (c) any material change in environmental information (including regulatory actions, adjacent-property contamination discoveries, or changes in applicable environmental standards) should trigger an event-driven revaluation as described in Section 2.

7. Capital Expenditure Versus Maintenance Classification

7.1 The GIPS Provision

GIPS requires that component returns, specifically income return and capital appreciation return, be presented for real estate composites in addition to total returns. The decomposition of total return into income and capital components is directly affected by the classification of property-level expenditures as either capital improvements (which increase property value and thus affect the capital return) or maintenance expenses (which are deducted from net operating income and thus reduce the income return). Consistent classification is essential for meaningful period-over-period comparison and for accurate composite return calculations.

7.2 The Hangar-Specific Problem

Hangar properties present a classification boundary problem that is more acute than in conventional commercial real estate. Hangar door systems (typically bifold, hydraulic, or stacking designs that cost $500,000 to $2 million for large corporate hangars) require periodic overhaul and eventual replacement. Is a $1.2 million hydraulic door system overhaul a capital expenditure that extends the asset’s useful life, or maintenance that preserves existing functionality? The answer materially affects the income/capital return decomposition.

Similar classification challenges arise with aircraft-rated concrete floor resealing, fire suppression system upgrades mandated by updated building codes, environmental remediation that improves the property’s condition beyond its prior state, and technology infrastructure upgrades such as aircraft tracking systems and advanced fueling equipment. In each case, the expenditure may simultaneously preserve existing functionality (maintenance) and add incremental value or extend useful life (capital improvement). The lack of industry-specific guidance for aviation real estate means that different managers may classify identical expenditures differently, compromising composite comparability.

The problem is compounded by the wasting-asset dynamic of ground leases. In conventional real estate, capital expenditures that extend an asset’s useful life are clearly distinguishable from maintenance. But when the asset’s economic life is bounded by a ground lease term, any expenditure that does not extend the asset’s life beyond the lease expiration is arguably maintenance from an economic perspective, even if it would be classified as a capital improvement under standard accounting rules. This lease-term constraint creates a philosophical tension between accounting classification and economic reality that the GIPS standards do not explicitly address.

7.3 Proposed AREPS Solution

The AREPS Protocol should establish standardized capital expenditure classification guidelines for aviation real estate that distinguish between three categories: (a) pure maintenance (repairs that restore existing functionality without extending useful life), (b) value-preserving capital expenditures (improvements that extend useful life or add functionality, but within the remaining ground lease term), and (c) speculative capital expenditures (improvements whose value extends beyond the current lease term and is therefore contingent on renewal). Category (a) would reduce income returns; category (b) would increase capital value; and category (c) would be disclosed separately as a risk item. The protocol should require disclosure of total expenditures by category as a percentage of beginning-period fair value.

8. FBO Business Enterprise Value and Composite Purity

8.1 The GIPS Provision

The GIPS standards require that composites be defined according to investment mandate, objective, or strategy, and that all portfolios managed according to similar mandates be included in appropriate composites. The standards do not provide specific guidance on how to separate real estate value from business enterprise value within a single portfolio, but the requirement for fair value determination and composite consistency implies that the separation must be performed consistently and must not introduce material distortion into composite returns.

8.2 The Hangar-Specific Problem

The companion paper identified FBO business enterprise value separation as a foundational challenge. This section extends that analysis by examining the composite purity implications. When an FBO complex is included in a real estate composite, the composite return reflects both real estate performance and business operating performance. The business enterprise value of an FBO (encompassing customer relationships, fuel supply agreements, operating certificates, brand value, and trained workforce) can represent 40 to 70 percent of total enterprise value, leaving only 30 to 60 percent attributable to real property.

If the composite is defined as a real estate composite, including the full enterprise value of FBO properties violates the composite definition by introducing non-real-estate returns. If the firm separates the real estate component and includes only that portion, the separation methodology becomes a critical driver of composite returns. Three common approaches (the residual approach, rental rate analysis, and cost approach verification) can produce materially different real estate value allocations. The residual approach is particularly volatile because FBO business values fluctuate with fuel margins, which are driven by commodity prices that can move independently of real estate market conditions.

The composite purity problem becomes especially challenging when FBO properties are combined with non-FBO hangars in the same composite. The FBO hangar component’s return, after business enterprise separation, will have different risk characteristics, volatility patterns, and market correlations than standalone investment hangars. This heterogeneity may violate the GIPS principle that composite constituents should share similar investment characteristics.

8.3 Proposed AREPS Solution

The AREPS Protocol’s four-composite segmentation model, proposed in the companion paper, addresses this issue by placing FBO properties in a dedicated “FBO/Operating” composite separate from investment hangars. Within this composite, the protocol should require a standardized business enterprise value separation methodology that the firm discloses and applies consistently. The recommended approach is to use a dual-method reconciliation: (a) rental rate analysis as the primary valuation of the real estate component, cross-checked against (b) the residual approach with explicit disclosure of the fuel margin assumptions and customer relationship capitalization rate. The difference between the two methods should be disclosed to investors as a measure of valuation uncertainty for the real estate component.

9. OCIO Portfolio Integration

9.1 The GIPS Provision

The December 2025 GIPS Guidance Statement for OCIO Portfolios established new requirements for Outsourced Chief Investment Officers that manage total portfolios including real estate allocations. Under this guidance, OCIO firms must classify assets into growth and risk-mitigating categories, present asset allocation breakdowns, disclose private market investment exposures, and calculate time-weighted returns even for portfolios containing illiquid private market investments. The guidance requires creation of Required OCIO Composites based on target asset allocation and mandates fee disclosure that includes all layers of management fees, including those charged by underlying fund managers.

9.2 The Hangar-Specific Problem

When hangar investments exist within OCIO-managed portfolios, as they increasingly do as institutional investors diversify into aviation infrastructure, the OCIO Guidance Statement creates several unique compliance challenges. First, classification of hangar investments as growth or risk-mitigating assets is ambiguous. Stabilized, core income hangars with long remaining ground lease terms share characteristics with risk-mitigating fixed-income instruments (stable, contractual cash flows with modest inflation protection). Value-add hangar development projects are clearly growth assets. But FBO complexes with integrated business operations, or hangars with intermediate lease terms and uncertain renewal prospects, resist clean classification.

Second, the time-weighted return requirement for OCIO composites creates a tension with the money-weighted returns that may be more appropriate for individual hangar fund investments. If an OCIO portfolio includes a commitment to a closed-end hangar development fund, the OCIO must calculate a time-weighted return for the total portfolio that includes that fund’s contribution, even though the fund itself may report only IRR-based money-weighted returns to the OCIO. Converting fund-level MWR to a contribution to total portfolio TWR requires interim valuations at each TWR measurement date, bringing the full weight of the Level 3 valuation challenge into the OCIO’s return calculation.

Third, the fee disclosure requirements under the OCIO Guidance Statement require that all management fees be presented, including fees charged by underlying fund managers. For hangar fund investments, these underlying fees may include base management fees, performance-based incentive fees, and asset management fees that are embedded in the fund’s NAV calculation. Disaggregating these fees for OCIO-level disclosure requires granular fee data from the hangar fund manager, data that may not be readily available in the format required by the OCIO guidance.

9.3 Proposed AREPS Solution

The AREPS Protocol should include an OCIO integration module that provides: (a) classification guidance for hangar investments within the growth/risk-mitigating framework, with specific criteria based on remaining ground lease term, occupancy stability, and development/repositioning exposure; (b) a standardized methodology for converting hangar fund MWR to TWR contributions suitable for OCIO-level return calculation; and (c) a fee disclosure template that hangar fund managers can provide to OCIO clients in a format consistent with the OCIO Guidance Statement requirements. This module would reduce the compliance burden on both OCIO firms and hangar fund managers while ensuring that aviation real estate allocations are properly reflected in OCIO performance reporting.

10. Summary of Additional Compliance Frontiers

Exhibit 1 consolidates the eight additional GIPS friction areas identified in this paper, the GIPS provisions at issue, and the proposed AREPS Protocol solutions.

Exhibit 1: Additional GIPS Compliance Friction Areas for Airport Hangar Portfolios

11. Conclusion

The eight additional GIPS compliance friction areas identified in this paper (appraisal smoothing, carve-out complexity, subscription line treatment, the SEC Marketing Rule interface, environmental contingent liabilities, capital expenditure classification, FBO business enterprise separation, and OCIO portfolio integration) represent the next frontier of compliance challenges as the airport hangar investment market matures. Together with the six foundational friction areas identified in the companion paper, they constitute a comprehensive map of fourteen distinct compliance challenges confronting any firm that seeks to report GIPS-compliant performance for aviation real estate portfolios.

Several observations emerge from this expanded analysis. First, the second-tier challenges are not independent of the foundational six; they interact in complex ways. Appraisal smoothing compounds the Level 3 valuation problem. Environmental liability amplifies the terminal value uncertainty. The carve-out challenge cannot be solved without first resolving the FBO business enterprise separation. These interdependencies mean that GIPS compliance for hangar portfolios is a system design problem, not a checklist exercise.

Second, the regulatory landscape is evolving in ways that simultaneously increase the value of and the difficulty of GIPS compliance for hangar investment managers. The SEC Marketing Rule’s performance presentation requirements overlap with but do not mirror GIPS requirements, creating dual compliance obligations. The OCIO Guidance Statement introduces new reporting demands for the institutional investors that are increasingly allocating capital to aviation infrastructure. FINRA’s Rule Notice 20-21, which mandates the use of GIPS-consistent methodologies for presenting unrealized IRR to retail investors, extends the compliance imperative to a broader audience. These regulatory developments suggest that the cost of non-compliance is rising faster than the cost of compliance, a dynamic that favors early adoption of comprehensive frameworks like the AREPS Protocol.

Third, and perhaps most significantly, the challenges documented across both papers are not unique to hangars in isolation. Marinas, data centers, cold storage, cell towers, and other niche real estate asset classes share many of the same structural characteristics: thin transaction data, specialized appraisers, single-purpose buildings, complex operating components, and regulatory dependencies. The AREPS Protocol, while developed for aviation real estate, provides a template for sector-specific GIPS compliance frameworks that can be adapted to any niche property type experiencing institutionalization.

The aviation real estate industry now manages tens of billions of dollars in assets under institutional ownership. The performance measurement discipline that the GIPS standards provide is no longer optional. It is a prerequisite for credible capital raising, fiduciary oversight, and regulatory compliance. This paper and its companion are intended to equip the industry with the analytical tools to achieve that discipline without sacrificing the operational realities that make airport hangar investment both challenging and rewarding.

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About the Author

Clay W. Carter, DBA, MBA, MS, CFA, FRM, CAIA, CIPM, is Professor of Finance at Embry-Riddle Aeronautical University’s College of Business and Principal of Valuation Takes Flight, a specialized aviation real estate valuation and advisory practice. Dr. Carter’s research focuses on the intersection of aviation infrastructure, real estate valuation, and institutional investment, with particular emphasis on empirical capitalization rate frameworks for income-producing hangars, ground lease term structures, and the application of alternative investment analytics to aviation real estate.

Dr. Carter’s credential portfolio uniquely positions him at the intersection of investment performance measurement and aviation real estate valuation. The CFA charter provides the investment analysis foundation; the CIPM designation delivers specific expertise in GIPS compliance and performance calculation methodology; the CAIA charter addresses alternative investment frameworks applicable to private real estate; and the FRM certification contributes the risk quantification discipline essential for modeling the unique risks of airport-dependent assets. Combined with his doctoral research in aviation finance and his Embry-Riddle faculty appointment, these credentials create a singular perspective on the GIPS compliance challenges facing the aviation real estate investment industry.

Correspondence: carterc@erau.edu

This paper is research and general information for professionals evaluating aviation real estate. It is not appraisal, legal, or tax advice, and it does not create an engagement.