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

Abstract

1. Introduction

A firm that wants to claim compliance with the Global Investment Performance Standards for an airport hangar portfolio confronts a set of problems the standards were not written to anticipate. The standards were designed for securities portfolios and extended to private markets, and real estate provisions within them assume a property type with observable transactions, a population of qualified valuers, and an index against which performance can be measured. Hangars have none of the three.

An earlier analysis in this series set out six foundational friction areas. Fair value determination for hangars falls squarely in Level 3 of the fair value hierarchy, with no observable inputs at any level of the analysis. External valuers qualified in aviation real estate are few, and the standards require external valuation by an independent professional valuer or appraiser. Composite construction is difficult because the asset class spans T-hangars, corporate facilities, fixed-base operator complexes, and maintenance facilities that behave differently. Benchmark selection has no good answer. Component return decomposition is complicated by the wasting-asset dynamic of ground leases. And the appraisal standards that govern the underlying valuations were written for a different purpose than the performance standards that consume them.

Those six arrive immediately, on the first attempt at compliance. This paper takes up eight that arrive later, as platforms mature. Several are more technically demanding than the first six. They sit at the intersection of hangar-specific institutional features and provisions written for more conventional structures, and they require solutions that are defensible rather than obvious.

Each section follows the same structure: the provision at issue, why hangars create difficulty under it, the compliance risk if the difficulty is ignored, and a proposed response. Throughout, the proposed responses are gathered under what this series calls the Aviation Real Estate Performance Standards Protocol. That protocol is the author's own proposal and is not a published standard of any body. It is offered as a starting point for an industry that currently has none, and readers should treat it as such.

The analysis draws on the 2020 edition of the standards, the Guidance Statement for OCIO Portfolios, SEC staff guidance under the Marketing Rule through January 2026, and the established literature on real estate performance measurement.

2. Appraisal Smoothing and Stale Pricing

2.1 The Provision

The standards require that all investments be valued at fair value, the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date (2.A.19). Real estate is a private market investment, and private market portfolios in composites presenting time-weighted returns must be valued at least quarterly, as of each quarter end or the last business day of the quarter (2.A.40).

External valuation requirements differ by structure. Real estate in an open-end fund requires an external valuation at least once every twelve months, with no exception (2.A.43). Real estate outside an open-end fund requires either an external valuation at least once every twelve months, unless client agreements stipulate otherwise, in which case at least once every thirty-six months, or an annual financial statement audit by an independent public accounting firm with fair value accounting and an unmodified opinion on the most recent statements (2.A.44). External valuations must be performed by an independent third party who is a professionally designated or certified commercial property valuer or appraiser (2.A.45).

One further provision deserves attention in this context. The firm must not use an external valuation where the valuer's fee is contingent upon the appraised value (2.A.46). In a property type with few qualified valuers and long-standing relationships between managers and the appraisers who serve them, this is not a formality.

2.2 The Hangar Problem

Appraisal smoothing is the tendency of appraised values to lag market values because valuers rely on historical evidence and anchor to prior valuations. Clayton, Geltner, and Hamilton (2001) tested the behavior directly using individual appraisals and rejected the no-lag hypothesis, finding that appraisers anchor onto their previous appraised values and that repeat appraisals lag more than first-time appraisals. The magnitude of the anchoring varies across studies and across periods rather than being a fixed parameter, and the paper's practical recommendation was appraiser rotation. McAllister, Baum, Crosby, Gallimore, and Gray (2003) reached compatible conclusions from a combination of index analysis and interviews with fund managers and valuers in the United Kingdom. Geltner (1993) showed separately that temporal aggregation in appraisal-based indices produces lag independent of any individual valuer's behavior.

Hangar properties amplify the problem through three mechanisms.

Transaction opacity is extreme. Many airports generate a hangar sale only every several years, which leaves a valuer with minimal contemporaneous evidence on which to revise. When comparable sales are scarce, greater reliance on the prior valuation is a rational response rather than a failure of diligence, and the anchoring literature predicts exactly that.

Adjacent-sector comparables introduce noise rather than resolving it. Industrial warehouse transactions require adjustments large enough that the adjusted indication carries wide uncertainty, which increases rather than decreases the relative attractiveness of the prior hangar-specific valuation as an anchor.

Ground lease structures produce a deterministic decline in value as the remaining term shortens, and that decline accelerates non-linearly as the term approaches the point where financing becomes unavailable. A quarterly internal valuation that does not model the term structure explicitly will understate the decline, and no transaction will correct it.

The consequence is that reported returns may understate both the mean and the variance of true returns, which is the general finding of Edelstein and Quan (2006) for commercial real estate. For hangars the effect compounds with risk characteristics that are themselves unusual: the wasting-asset dynamic, regulatory exposure through federal grant assurances, and the bargaining position of the airport sponsor at reversion, each of which can move value materially between measurement dates in ways a smoothed appraisal will not register.

2.3 Compliance Risk

If hangar returns are systematically smoothed, reported volatility understates true risk and any risk-adjusted comparison against other asset classes in an investor's portfolio is misleading. The firm may satisfy the letter of the fair value requirement while producing a presentation that does not reflect contemporaneous market conditions. The exposure is greatest where hangars sit inside a broader real estate composite alongside property types with deeper transaction markets and less smoothing, because the composite return then blends series with different lag structures.

2.4 Proposed Response

Three measures follow from the literature rather than from invention.

Rotate valuers. Clayton, Geltner, and Hamilton found that first-time appraisers use more contemporaneous evidence than repeat appraisers, and recommended rotation on that basis. A three-year rotation on individual properties is a reasonable interval given the scarcity of qualified aviation valuers.

Use event-driven revaluation triggers. Any material change in ground lease status, sponsor policy, federal regulatory action, or tenant credit should prompt an interim internal revaluation regardless of the quarterly schedule.

Disclose an unsmoothed estimate as supplemental information. A desmoothed return calculated on the framework of Fisher, Geltner, and Webb (1994), presented alongside the appraised-value return, gives investors visibility into the potential magnitude of the bias. Couts (2024) provides recent evidence on the scale of smoothing in private equity real estate that is useful for calibrating expectations about what the adjustment will show.

3. Carve-Outs in Multi-Asset Aviation Portfolios

3.1 The Provision

The 2020 edition permits carve-outs with allocated cash. A carve-out must include cash and related income, and the cash may be either accounted for separately or allocated synthetically on a timely and consistent basis (3.A.15). The carve-out must be representative of a standalone portfolio managed or intended to be managed to that strategy (3.A.16). The firm must create carve-outs with allocated cash from all portfolios and portfolio segments within the firm managed to that strategy and include them in the composite (3.A.17). Where the firm has or obtains standalone portfolios in the same strategy, it must create a separate composite for them (3.A.18), and must present that standalone composite's returns for each annual period and its assets as of each annual period end within the carve-out composite's report (4.A.13). The firm must also present the percentage of composite assets represented by carve-outs with allocated cash (4.A.6), name the composite so as to indicate it contains carve-outs, and disclose the cash allocation policy (4.C.28).

This is a reversal. The 2010 edition prohibited it: a carve-out was not to be included in a composite unless it was managed separately with its own cash balance (2010 edition, 3.A.8). Firms that built their hangar reporting under the earlier rule are operating under a constraint that no longer exists.

3.2 The Hangar Problem

Aviation real estate rarely exists in pure-play hangar form at the portfolio level. Institutional investors acquire hangars as components of broader aviation platforms that include fixed-base operations, fuel infrastructure, ground support equipment, terminal buildings, and occasionally adjacent operating businesses. Even a dedicated aviation real estate vehicle may hold T-hangars, corporate facilities, fixed-base operator complexes, and maintenance buildings serving segments with different economics.

A firm that wants to present hangar-only performance must therefore carve the hangar component out of multi-asset portfolios, and three difficulties follow.

Cash allocation is genuinely ambiguous. Should cash be allocated on the hangar's share of fair value, of income, or of strategic target? Each produces materially different returns, particularly in periods when operating business value moves independently of real estate value.

Shared infrastructure resists clean separation. Aprons, taxilanes, fuel systems, and utilities serve both the hangars and the rest of the platform, and there is no natural boundary.

The enterprise value separation problem discussed in Section 8 has to be solved before the carve-out allocation can begin, because the real property component must be identified before it can be carved out.

3.3 Proposed Response

Allocate cash on beginning-of-period fair value, which is the most defensible of the three candidates because it does not require a forward judgment and is reproducible from the valuation record. Allocate shared infrastructure on exclusive-use square footage, with common-area cost allocated pro rata. Disclose the methodology in the composite report with enough specificity for an investor to evaluate it, which the standards require in substance at 4.C.28. Where the enterprise value separation materially affects the carve-out return, disclose the sensitivity of the return to alternative separation assumptions rather than presenting a single figure as though the allocation were determinate.

4. Subscription Lines and Leverage

4.1 The Provision

Total firm assets, composite assets, and pooled fund assets must include only actual assets managed by the firm and must be calculated net of discretionary leverage and not grossed up as if the leverage did not exist (2.A.2). All required returns must be calculated net of discretionary leverage unless otherwise specified (2.A.15).

For money-weighted returns the standards add a specific requirement. Where a subscription line of credit is used, the firm must present the composite since-inception money-weighted return both with and without the line through the most recent annual period end. The firm is relieved of the without-line presentation only where the line has both of two characteristics: the principal was repaid within 120 days using committed capital drawn down through a capital call, and no principal was used to fund distributions (5.A.2; the identical rule for pooled funds is 7.A.2). When calculating the return without the line, the line's cash flows are included (2.A.50). Disclosure of the line's purpose, size, and amount outstanding at the most recent annual period end is required (5.C.36, 7.C.32).

4.2 The Hangar Problem

Closed-end development funds are the primary vehicle through which institutional capital reaches ground-up hangar construction, and they routinely use both a subscription line and property-level mortgage debt. The line allows rapid commitment when a development opportunity arises, since permits, site approvals, and construction contracts do not wait for capital calls to fund.

The construction timeline is what creates the compliance burden. Entitlement and permitting, construction, and lease-up together commonly span two to three and a half years, during which the line may be drawn to fund costs well before capital is called. The 120-day safe harbor was designed for short-term bridging, not for a development cycle, so most hangar development funds will fall outside it and will owe the dual presentation. That requires tracking the timing and magnitude of line draws and capital calls at a granular level from the fund's inception, which is difficult to reconstruct retroactively and straightforward to maintain prospectively.

A second issue is conceptual rather than procedural. Ground rent payable to the airport sponsor functions economically like leverage: it is a fixed obligation senior to equity, it is non-discretionary, and failure to service it terminates the investment. It is not leverage under the standards, and the treatment is correct as a definitional matter. But an investor comparing a leasehold hangar fund against a fee-simple real estate fund on reported leverage metrics alone will understate the hangar fund's fixed-obligation burden.

4.3 Proposed Response

Present the dual money-weighted return for any development fund using a subscription line, and disclose the average outstanding balance and its duration relative to the capital call schedule rather than only the period-end balance, which for a construction fund can be unrepresentative. Disclose loan-to-value and debt service coverage at property level, aggregated to the composite. As supplemental information, present a full-obligation return that treats ground rent as a quasi-leverage component, which allows a like-for-like comparison against fee-simple alternatives. That supplemental presentation is not required by anything and is offered because the comparison it enables is one investors will otherwise make incorrectly.

5. The SEC Marketing Rule Interface

5.1 The Regulatory Position

Rule 206(4)-1 under the Investment Advisers Act of 1940 was adopted in December 2020, became effective in May 2021, and carried a compliance date of 4 November 2022. It requires gross performance to be accompanied by net performance with equal prominence, restricts hypothetical performance, and treats any presentation of a subset of portfolio investments as extracted performance subject to specific conditions.

In March 2025 the staff of the Division of Investment Management updated the Marketing Rule frequently asked questions, reversing the more restrictive position taken in January 2023. Gross-only extracted performance is now acceptable where four conditions hold: the extract is clearly identified as gross and as not reflecting the deduction of all fees and expenses; it is accompanied by the total portfolio's gross and net performance calculated in compliance with the rule; the total portfolio performance is presented with at least equal prominence and in a format facilitating comparison; and it covers a period at least as long as the extract. The same structure was extended to portfolio and investment characteristics such as yield, volatility, and risk-adjusted return measures.

Two further staff items followed in January 2026. One addresses the use of model fees where an adviser presents net performance using actual historical fees while anticipating charging higher fees prospectively, and takes the position that whether this violates the general prohibitions turns on the facts and circumstances of the particular advertisement, including the relevant disclosures. The other provides conditional relief permitting compensation of promoters subject to prior self-regulatory organization final orders, with disclosure for ten years following the order.

Reports prepared under the performance standards are generally advertisements for Marketing Rule purposes, which creates a dual obligation for a registered adviser claiming compliance. CFA Institute published guidance reconciling the two frameworks in September 2022 and revised it in September 2023 in response to the January 2023 staff position. Practitioners should note that the revised sections address guidance the March 2025 update superseded, and that the reconciliation document has not been revised since.

5.2 The Hangar Problem

Three difficulties are either specific to aviation real estate or sharpened by it.

Extracted performance is pervasive rather than occasional. As Section 3 sets out, hangars are frequently components of larger aviation platforms, so any presentation of hangar-only performance drawn from such a platform is extracted performance. The March 2025 relaxation helps, since hangar-specific gross returns may now be shown without a hangar-specific net calculation, but the requirement to present the total portfolio's gross and net returns with at least equal prominence remains, and equal prominence is a design constraint rather than a disclosure.

Fee allocation between real estate and operating business complicates the net calculation. Where a portfolio includes fixed-base operator facilities, management fees are frequently charged on total assets under management, which includes both real property and business enterprise value. Calculating a net return for the real estate component alone requires allocating the fee between the two, and neither the performance standards nor the Marketing Rule supplies a methodology for doing so. The rule requires only that whatever methodology is used be disclosed and applied consistently.

Ground lease term dynamics create an affirmative disclosure question. A hangar portfolio can show attractive income returns while its capital value declines as the remaining term shortens. Presenting a total return without the income and capital decomposition could be misleading under the rule's general prohibitions, particularly where the investor is comparing against fee-simple alternatives that have no wasting-asset characteristic. The difficulty, addressed in Section 7, is that the standards no longer require that decomposition.

5.3 Proposed Response

A Marketing Rule module within the protocol should require four things: disclosure of ground lease term dynamics and their expected effect on future returns wherever hangar performance appears; presentation of component return decomposition in any advertisement containing hangar performance, notwithstanding that the standards treat it as a recommendation; a documented and consistently applied fee allocation methodology for portfolios containing both real property and operating business; and a reconciliation showing where compliant returns under the two frameworks differ, particularly on transaction cost treatment.

One trap deserves specific mention. FINRA Regulatory Notice 20-21 addresses retail communications concerning private placement offerings. It does not mandate use of the performance standards. It takes the position that internal rate of return in a retail communication about a new program with no operations or a blind pool would be inconsistent with the prohibition on unwarranted projections, and that where a program has ongoing operations, the rule permits inclusion of internal rate of return if it is calculated in a manner consistent with the standards and accompanied by required metrics such as paid-in capital, committed capital, and distributions paid. A firm that is not compliant with the standards cannot describe its methodology as consistent with them, which is a constraint a firm relying on the FINRA position needs to understand before it relies on it.

6. Environmental Contingent Liability

6.1 The Provision

Fair value must reflect the assumptions market participants would use in pricing the asset. Under both U.S. and international fair value guidance, the measurement takes into account characteristics of the asset that market participants would consider, including the condition and location of the asset and restrictions, if any, on its sale or use (ASC 820-10-35-2B; IFRS 13.11). The effect of a particular characteristic on the measurement depends on how market participants would take it into account (ASC 820-10-35-2C; IFRS 13.12). Environmental liabilities are characteristics that market participants price, and must therefore be reflected.

The same provisions are directly relevant to ground leases, through-the-fence arrangements, and federal grant assurances, each of which restricts use in ways a market participant would price.

6.2 The Hangar Problem

Airport properties carry environmental exposure that differs in kind from most commercial real estate. Fuel handling, de-icing, hydraulic fluid, and decades of industrial aviation activity create soil and groundwater risk. Firefighting foam containing fluorinated compounds was used in training and in response for decades at airfields across the country, and the resulting contamination is now the subject of active regulatory attention and litigation. Airport ground leases commonly assign remediation responsibility to the tenant, and many trigger a mandatory environmental assessment at lease expiration, with remediation cost deducted from any reversion value or billed to the departing tenant.

The compliance difficulty is one of timing and quantification. The liability frequently does not become apparent until a Phase I or Phase II assessment is performed, which typically occurs at transaction due diligence or at lease expiration. Between those events, fair value must rest on a probability-weighted estimate of environmental exposure, which is a Level 3 input layered on top of an already Level 3 valuation.

The magnitude is not trivial and, unlike several other figures circulating in this field, there is published evidence for it. Saginor, Simons, and Throupe (2011) conducted a meta-analysis of the effect of environmental contamination on non-residential real estate values, examining 106 contaminated non-residential observations in the United States. They found an average diminution in value attributable to contamination of approximately 23 percent, with roughly a third of properties showing no measurable loss and with properties in the remediation phase showing smaller losses than those where remediation had not begun. Relative to petroleum contamination, creosote and polychlorinated biphenyl contamination carried an additional discount of roughly 38 percent, multiple contamination sources roughly 25 percent, and heavy metals roughly 20 percent.

Two caveats apply. The study covers non-residential property generally rather than airports specifically, and it predates the current regulatory posture toward fluorinated compounds. It is nonetheless the only peer-reviewed quantification available, and it is a better foundation for a fair value adjustment than an unsourced practitioner range.

6.3 Proposed Response

Environmental risk should be addressed explicitly in every hangar fair value determination, with the methodology disclosed. A tiered approach is workable. Where a current Phase I or Phase II assessment identifies a recognized environmental condition, the estimated remediation cost should be deducted from fair value. Where no current assessment exists, a probability-weighted reserve should be established based on the property's use history, age, and fuel handling, calibrated to the published evidence rather than to judgment alone. Any material change in environmental information, including a regulatory action, an adjacent-property discovery, or a change in applicable standards, should trigger the event-driven revaluation described in Section 2.

7. Capital Expenditure Classification

7.1 The Provision, and a Correction

Component returns for real estate, meaning the decomposition of total return into income return and capital return, are not required by the 2020 edition. They are recommended: for real estate composites the firm should present composite and benchmark component returns for all periods presented (4.B.9), with the parallel recommendation for real estate pooled funds at 6.B.9.

This is a change from the prior edition, which required them. The 2010 edition provided that firms must present component returns in addition to total returns, and that composite component returns must be clearly identified as gross-of-fees or net-of-fees (2010 edition, 6.A.14). The glossary definitions of capital return, income return, and capital employed survive in the 2020 edition; the obligation to present them does not.

For most property types the demotion is defensible. For hangars it removes the single reporting element that communicates the asset class's defining risk. A leasehold hangar can produce a strong income return and a negative capital return in the same period, every period, as a matter of arithmetic rather than market conditions. A total return conceals that. A decomposed return reveals it. The practical conclusion for this paper is that a hangar manager should present component returns notwithstanding that the standards no longer compel it, and should say in the report that the presentation exceeds what is required and why.

7.2 The Hangar Problem

Where component returns are presented, the boundary between capital improvement and maintenance drives the split, and hangars present that boundary problem more sharply than conventional property.

A large hangar door system is the clearest case. Bifold, hydraulic, and stacking door assemblies for corporate hangars represent a substantial share of the structure's cost, and they require periodic overhaul and eventual replacement. Whether a major hydraulic door overhaul is a capital expenditure that extends useful life or maintenance that preserves existing functionality materially affects the decomposition, and there is no industry guidance answering it. No published cost data for these systems exists either. Manufacturers decline to publish pricing, and no trade association survey or standard cost-estimating service carries a line item for them, so any figure used in an analysis has to be sourced to a named vendor quotation and labeled as such.

Similar boundary problems arise with aircraft-rated floor resealing, fire suppression upgrades mandated by revised codes, environmental remediation that leaves the property in better condition than before, and technology infrastructure. In each case the expenditure simultaneously preserves functionality and adds value or life.

The ground lease compounds it. Where the asset's economic life is bounded by the lease term, an expenditure that does not extend life beyond lease expiration is economically maintenance even where accounting treatment would capitalize it. The standards do not address this tension, and two managers applying identical accounting policies to identical assets can produce different decompositions depending on how they treat the lease boundary.

7.3 Proposed Response

Adopt a three-category classification. Pure maintenance restores existing functionality without extending useful life and reduces income return. Value-preserving capital expenditure extends useful life or adds functionality within the remaining ground lease term and increases capital value. Speculative capital expenditure has value extending beyond the current term and therefore contingent on renewal, and should be disclosed separately as a risk item rather than capitalized without qualification. Disclose total expenditure by category as a percentage of beginning-period fair value, which makes the classification policy visible and comparable across managers.

8. FBO Enterprise Value and Composite Purity

8.1 The Provision

Composites must be defined according to investment mandate, objective, or strategy, and all portfolios managed to similar mandates must be included in appropriate composites. The standards do not prescribe how to separate real property value from business enterprise value within a portfolio, but the fair value requirement and the composite definition requirement together imply that the separation must be consistent and must not introduce material distortion.

8.2 The Hangar Problem

A fixed-base operator is a business that occupies real estate. Its value includes customer relationships, fuel supply arrangements, operating authority, brand, and trained workforce, none of which is real property. Where a fixed-base operator complex sits inside a real estate composite, the composite return reflects both property performance and business performance.

Two paths are available and both have costs. Including full enterprise value violates the composite definition by introducing returns that are not real estate returns. Separating the real property component makes the separation methodology a primary driver of the reported return. Three approaches are commonly used, and they do not agree: a residual approach that subtracts business value from enterprise value, a rental rate analysis that values the real property directly from market rent, and a cost approach used as a check. The residual approach is the most volatile of the three because business value moves with fuel margin, which is driven by commodity prices that are uncorrelated with real estate market conditions.

No published source quantifies the typical split between business enterprise value and real property value at a fixed-base operator. Appraisal practice recognizes the allocation problem and the Appraisal Institute offers instruction on business enterprise valuation generally, but no study, survey, or dataset establishes a percentage. Any figure a manager uses is its own estimate, and presenting it otherwise misrepresents its provenance.

A further difficulty is heterogeneity. After separation, a fixed-base operator hangar component has different risk characteristics, volatility, and market correlation than a standalone investment hangar. Placing both in one composite is in tension with the principle that composite constituents should share investment characteristics.

8.3 Proposed Response

Segment fixed-base operator properties into a dedicated operating composite separate from investment hangars, which resolves the heterogeneity problem by construction. Within that composite, apply a dual-method reconciliation: rental rate analysis as the primary valuation of the real property component, cross-checked against a residual calculation with the fuel margin assumption and the customer relationship capitalization rate disclosed. Report the difference between the two methods to investors as a measure of valuation uncertainty. Where the manager uses a percentage allocation, state plainly that it is the manager's estimate and that no published benchmark exists.

9. OCIO Portfolio Integration

9.1 The Provision

The Guidance Statement for OCIO Portfolios was released in December 2024 and applies to reports covering periods ending on or after 31 December 2025. It establishes requirements for outsourced chief investment officers managing total portfolios, and several of them interact directly with a hangar allocation.

Assets are classified within one of two strategy families. A liability-focused strategy divides assets into liability-hedging and growth; a total return strategy divides them into growth and risk-mitigating. Growth assets are those used for long-term capital appreciation, typically with higher accompanying volatility. An asset class may not be split across both categories.

Ten required composites are defined, five allocation bands within each strategy family, and assignment is based on the portfolio's strategic asset allocation rather than its tactical allocation.

Returns must be time-weighted. The guidance states this expressly, notwithstanding that underlying real estate and private equity holdings are frequently reported on a money-weighted basis.

Both gross-of-fees and net-of-fees returns are required, and both must reflect transaction costs together with fees and expenses of underlying pooled funds and externally managed segregated accounts. The net figure must additionally reflect the outsourced manager's own fee. A pure gross-of-fees return is permitted only as supplemental information.

9.2 The Hangar Problem

Classification is the first difficulty. A stabilized income hangar with a long remaining ground lease has the characteristics of a risk-mitigating asset: contractual cash flow, index-linked escalation, low vacancy. A development-stage hangar project is unambiguously growth. A fixed-base operator complex with integrated operations, or a hangar with an intermediate term and uncertain renewal, resists either label. Since the guidance forbids splitting an asset class across categories, the manager must choose, and the choice will materially affect which of the ten composites a portfolio lands in.

The time-weighted return requirement is the second and is more demanding. Where a portfolio holds a commitment to a closed-end hangar development fund, the outsourced manager must produce a time-weighted return for the total portfolio that includes that fund's contribution, even though the fund reports internal rate of return to its investors. Converting a fund-level money-weighted return into a contribution to portfolio-level time-weighted return requires a valuation at each measurement date, which imports the entire Level 3 valuation problem described in Section 2 into the outsourced manager's return calculation, at a frequency the underlying fund may not support.

Fee disclosure is the third. Underlying fees at a hangar fund may include a base management fee, a performance fee, and asset management fees embedded in net asset value. Disaggregating them into the form the guidance requires depends on the hangar manager providing data in a format it may not currently produce.

9.3 Proposed Response

The protocol should supply three things. Classification criteria for hangar investments within the growth and risk-mitigating framework, keyed to remaining ground lease term, occupancy stability, and development exposure, so that the choice is documented rather than ad hoc. A methodology for converting a hangar fund's money-weighted return into a time-weighted contribution, including the valuation frequency the outsourced manager should require by side letter at commitment rather than request after the fact. And a fee disclosure template that hangar fund managers can supply in the form the guidance requires, which reduces burden on both sides.

10. Summary

Table 1. Eight compliance friction areas for airport hangar portfolios.

Provision references are to the 2020 GIPS Standards for Firms unless otherwise noted. The proposed responses are the author's, gathered under the protocol described in Section 1, and are not requirements of any standard.

11. Limitations

Four limitations bear on how this paper should be used.

The protocol is a proposal, not a standard. No standards body, trade association, appraisal organization, or index provider publishes a framework for aviation real estate performance measurement. Everything presented here under that heading is the author's recommendation, and nothing in it carries authority.

There is no benchmark, and this is now verified rather than assumed. The principal institutional real estate index classifies property as hotel, industrial, land, office, other, residential, retail, self-storage, and seniors housing, and the only airport-related subtype anywhere in the taxonomy is an air cargo category within industrial, defined as a facility for the movement of goods by air. That is freight logistics, not hangar. The major international private real estate indices classify by office, retail, industrial or logistics, residential, and in some cases hotel and healthcare, with no aviation category. The leading fund-level private real estate benchmark is organized by vintage year and strategy with no property sector breakdown at all. Section 5 of the companion analysis treated benchmark absence as the central obstacle to institutional adoption, and that conclusion stands.

Several figures a manager needs have no published source. No cost data exists for large hangar door systems. No study quantifies the allocation between business enterprise value and real property at a fixed-base operator. Where this paper would once have supplied a range, it now says that no source exists, and a manager who needs a number must generate and document its own.

Regulatory positions in this area move. The staff guidance under the Marketing Rule changed direction between January 2023 and March 2025 and added items in January 2026. Two further guidance items took effect in January 2026: revised standards for verifiers, addressing asset owners and fiduciary management providers, and a guidance statement on composites for fiduciary management providers. An exposure draft on return attribution reporting and further guidance on trade errors were in development as of late 2025. Anything in this paper that turns on a staff position should be checked against the current text before it is relied on.

12. Conclusion

The eight friction areas examined here, taken with the six foundational ones described at the outset, map fourteen distinct compliance problems facing a firm reporting performance for aviation real estate.

Three observations follow from the expanded set.

The second-tier problems are not independent of the first. Appraisal smoothing compounds the Level 3 valuation difficulty. Environmental liability amplifies terminal value uncertainty. The carve-out problem cannot be solved before the enterprise value separation is. Compliance for this asset class is a system design problem, and solving the items one at a time produces an internally inconsistent framework.

The regulatory direction increases both the value and the difficulty of compliance. The Marketing Rule creates a parallel obligation that overlaps with but does not mirror the performance standards, and the staff position within it has moved twice in three years. The OCIO guidance introduces reporting demands on the institutional investors most likely to allocate to aviation infrastructure. FINRA's position on internal rate of return in retail communications, while permissive rather than mandatory, places a firm that is not compliant in the position of being unable to describe its methodology as consistent with the standards. The cost of non-compliance is rising faster than the cost of compliance, which is an argument for early adoption of a framework rather than for waiting until one is imposed.

One correction in this paper deserves emphasis because it cuts against the direction the standards took. Component returns for real estate were required in 2010 and are recommended in 2020. For most property types the change is unobjectionable. For a leasehold asset whose capital value declines by construction, the decomposed return is the disclosure that communicates the risk, and a manager who presents only total returns is compliant and uninformative at the same time. The recommendation of this paper is to present them anyway.

The problems documented across both parts of this analysis are not unique to hangars. Marinas, data centers, cold storage, cell towers, and other specialized property types share the structural features that produce them: thin transaction data, few qualified valuers, single-purpose improvements, embedded operating businesses, and regulatory dependencies. A sector-specific compliance framework developed for aviation real estate is a template for any niche property type moving toward institutional ownership, and the sequence of problems it has to solve will be recognizable to anyone who has tried.

References

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This paper is research and general information for professionals evaluating aviation real estate. It is not appraisal, legal, investment, or tax advice, and it does not create an engagement. It is not a substitute for the text of the standards or for advice from a qualified verifier.