Hangar in the Portfolio: Aviation Real Estate for Institutional Investors

Abstract

Insurance companies face a persistent portfolio construction challenge: their core fixed-income holdings, while providing stable income and liability matching, offer limited diversification against inflation and expose portfolios to duration risk during rising-rate environments. The post-2008 search for yield has driven insurers to allocate increasingly to alternative assets, yet many alternative categories (private equity, hedge funds, and even conventional commercial real estate) exhibit correlations to public equities and credit cycles that diminish their diversification value precisely when it is most needed. This paper argues that aircraft hangars represent an underexplored alternative real estate sub-asset class for insurance company portfolios. Drawing on publicly available market data, FAA infrastructure records, REIT filings, and the academic real estate literature, we develop a portfolio-theoretic case for hangar allocation. We find that hangars offer target IRRs of 12-18%, risk premiums of 200-400 basis points above core real estate, built-in inflation protection through CPI-linked lease escalations, and demand drivers (corporate profitability, high-net-worth household formation, and business aviation fleet growth) that exhibit low correlation with the traditional property types dominating most insurer real estate allocations. The structural undersupply of hangar capacity, evidenced by waitlists averaging six months to two years at desirable airports, provides pricing power and occupancy stability that reduce downside risk. We examine the regulatory framework governing insurance company real estate investments, including NAIC risk-based capital requirements, and demonstrate that hangars’ risk-return profile is favorable relative to the capital charges imposed. The paper concludes with a practical implementation framework for insurance company investment officers seeking to establish or expand aviation real estate exposure within their alternative asset allocations.

1. Introduction

The insurance industry’s investment challenge is structural and enduring. Insurers collect premiums today to pay claims tomorrow, sometimes decades hence, and must invest the intervening float to generate returns sufficient to cover policy obligations while maintaining regulatory capital adequacy. For generations, this challenge was addressed primarily through allocations to investment-grade fixed income, which offered predictable cash flows, duration matching to liabilities, and favorable risk-based capital (RBC) treatment. The post-2008 low-interest-rate environment fundamentally disrupted this equilibrium. With yields on high-grade corporate bonds compressed to levels that threatened the economic viability of long-duration liability products, insurers began a systematic reallocation toward alternative assets, a migration that accelerated through the 2020s and shows no signs of reversing even as rates have normalized.

The scale of this reallocation is substantial. Insurance company allocations to alternative assets classified under Schedule BA have grown from approximately 3.8% of total invested assets in 2008 to a median of roughly 10% by 2025, with some firms allocating upwards of 20-30%. Private credit now dominates these allocations, but real estate equity, infrastructure, and other real asset categories have also attracted significant capital. Industry analysts project that insurers will continue expanding alternative allocations as they seek diversification benefits, inflation hedging, and enhanced yield in a world where public credit spreads remain at historically tight levels.

Yet the insurance industry’s engagement with real estate as an alternative allocation has been conventional. Insurers overwhelmingly concentrate their real estate equity in the four traditional “food groups”: office, retail, industrial, and multifamily. These property types benefit from deep transaction markets, established benchmarks such as the NCREIF Property Index, and decades of academic research supporting their role in portfolio construction. The concentration, however, creates a paradox: by allocating to the same property types held by pension funds, endowments, and sovereign wealth funds, insurers achieve less diversification benefit than the “alternative” label implies. The COVID-19 pandemic’s impact on office and retail valuations, property types that constitute significant portions of many institutional real estate portfolios, highlighted the risks of this conventional approach.

This paper proposes that aircraft hangars represent an empirically supportable addition to insurance company real estate allocations. The global aircraft hangar leasing market was valued at approximately $5.74 billion in 2024, with North America accounting for roughly $2.2 billion. Projections indicate a compound annual growth rate of 6.2% through 2033, by which point the global market is expected to approach $9.85 billion. Despite this scale, the academic portfolio construction literature contains no analysis of hangars as a distinct real estate allocation for institutional investors, and the insurance investment literature ignores the category entirely.

This omission is consequential for three reasons. First, hangars exhibit demand drivers (corporate profitability, high-net-worth household formation, and business aviation fleet growth) that are structurally distinct from those governing the four traditional property types. This differentiation provides portfolio diversification benefits that mean-variance optimization suggests should be valued by any investor holding conventional real estate. Second, hangar leases typically include CPI-linked rent escalation provisions, and the structural undersupply of hangar capacity in most markets provides pricing power that supports above-inflation rent growth, characteristics that directly address the inflation-hedging mandate increasingly central to insurance company investment policy statements. Third, the operational simplicity of hangars relative to office buildings, retail centers, or multifamily complexes reduces the management burden and tenant-coordination risk that have historically deterred some insurers from direct real estate equity investment.

The paper proceeds as follows. Section 2 reviews the academic literature on insurance company portfolio construction, alternative asset allocation, and the emerging scholarship on aviation real estate. Section 3 develops the theoretical case for hangar diversification using the mean-variance framework, with particular attention to the correlation structure between hangar returns and those of traditional property types and fixed-income assets. Section 4 examines the risk-return characteristics of hangar investments that are specifically relevant to insurance company constraints, including income stability, inflation sensitivity, and the non-linear relationship between ground lease terms and capitalization rates. Section 5 addresses the regulatory environment, including NAIC risk-based capital requirements for real estate equity and the Schedule A and Schedule BA reporting classifications that govern how hangar investments appear on insurance company balance sheets. Section 6 presents a practical implementation framework for insurance investment officers. Section 7 discusses limitations and directions for future research.

2. Literature Review

2.1 Insurance Company Portfolio Construction

The academic literature on insurance company investment management is substantial but heavily oriented toward fixed-income portfolio construction and asset-liability management. Briys and de Varenne (1997) developed the foundational option-theoretic framework for life insurer solvency, demonstrating that the insurer’s equity can be modeled as a call option on the surplus of assets over liabilities, a framework that highlights the importance of asset diversification in widening the gap between asset values and liability obligations. Cummins, Phillips, and Smith (2001) extended this analysis to property-casualty insurers, showing that investment strategy is endogenous to the insurer’s underwriting risk profile and that optimal asset allocation depends on the correlation between investment returns and underwriting outcomes.

More recent work has focused on the implications of the low-yield environment for insurer investment strategy. Koijen and Yogo (2022) document a systematic “reaching for yield” behavior among life insurers, showing that firms with more binding regulatory constraints allocate more heavily to higher-yielding, lower-rated bonds, a finding that extends naturally to the question of whether similar yield-seeking behavior explains the migration toward alternative assets. Ellul, Jotikasthira, and Lundblad (2011) demonstrate that regulatory capital requirements create fire-sale dynamics in insurer fixed-income portfolios during market stress, providing a diversification rationale for assets whose valuations are less sensitive to credit spread movements.

The literature on insurer real estate allocation is thin. Andonov, Eichholtz, and Kok (2015) examine pension fund real estate allocations and find that direct property investments provide diversification benefits that are largely unavailable through REITs, which exhibit high correlation with public equity markets. While their analysis focuses on pension funds rather than insurers, the finding is directly relevant: insurance companies seeking diversification through real estate equity should consider direct or semi-direct ownership structures rather than relying exclusively on publicly traded REIT shares.

2.2 Alternative Asset Allocation and Diversification

The theoretical case for alternative assets in institutional portfolios rests on the mean-variance framework of Markowitz (1952) and its extensions. An asset with positive expected returns and low correlation to existing portfolio holdings expands the efficient frontier, allowing the investor to achieve higher risk-adjusted returns. The practical question is whether the correlation benefits of specific alternative asset classes persist through market stress, the periods when diversification is most valuable.

Ang, Papanikolaou, and Westerfield (2014) demonstrate that portfolio allocation to real assets provides meaningful diversification during inflationary episodes, the scenario that insurance companies with long-duration liabilities most fear. Hoesli and Oikarinen (2012) show that the correlation between real estate and equities varies substantially across property types, suggesting that property-type selection within the real estate allocation matters as much as the total allocation to real estate itself. Pagliari, Scherer, and Monopoli (2005) extend this analysis to alternative real estate categories including infrastructure, finding that niche property types can provide diversification benefits unavailable from the traditional four property types.

The insurance-specific application of this diversification literature is developed by the industry literature rather than the academic literature. J.P. Morgan Asset Management’s 2025 analysis of alternatives in insurer portfolios argues that private credit, infrastructure, and real estate provide exposure to different risk factors and return drivers that can enhance portfolio resilience across the market cycle. Invesco’s 2025 Insurance Investment Outlook similarly identifies commercial real estate equity as a diversifying opportunity for insurers, noting that reduced capital charges implemented in 2021 have enhanced the asset class’s capital efficiency. GCM Grosvenor’s 2025 toolkit for insurance investors observes that many insurers remain significantly underexposed to alternatives, missing valuable diversification and return potential. None of these industry analyses, however, considers aviation real estate as a distinct sub-category with differentiated risk characteristics.

2.3 Aviation Real Estate as an Asset Class

The academic literature on aircraft hangar valuation is sparse. Lindsey (2008a, 2008b) provides the only comprehensive peer-reviewed treatment, establishing the framework for hangar valuation methodology across the three traditional approaches (cost, sales comparison, and income capitalization) while identifying the unique characteristics that distinguish hangars from standard commercial real estate. Carter (2026a) extends this foundation by developing an eight-category investor taxonomy for aircraft hangar acquisitions, documenting that the same facility can differ in appraised value by 20-30% depending on whether the most probable buyer is an owner-occupant pilot, a value-add private equity fund, or a publicly traded REIT. Carter (2026b) further develops the empirical framework for understanding the relationship between remaining ground lease terms and capitalization rates, a critical risk factor for leasehold hangar investments that has no parallel in the freehold real estate that dominates most insurer real estate portfolios.

The institutional transformation of the hangar market provides the context for this paper’s portfolio construction argument. Sky Harbour Group Corporation, which began trading on the NYSE in 2022, has demonstrated the viability of the hangar REIT model, operating nine campuses across premier U.S. airports with $166.3 million in tax-exempt Private Activity Bonds and a $200 million JPMorgan construction warehouse facility. Private equity firms including Blackstone, KKR, and Bain Capital have collectively deployed billions into aviation infrastructure platforms. These institutional commitments validate the asset class’s investability at scale, a prerequisite for insurance company participation.

The adjacent literature on niche real estate asset classes provides both precedent and methodology for this paper’s analysis. Self-storage, once considered a niche, special-purpose asset class with limited academic attention, has evolved into a fully institutional category with dedicated REIT coverage and quarterly cap rate surveys covering 400+ properties. Marinas represent perhaps the closest analogue to airport hangars: waterfront infrastructure assets on public or quasi-public land, often subject to ground leases from government authorities, with single-purpose improvements that cannot be repurposed. The maturation paths of these formerly niche categories provide a template for understanding how hangar investments may evolve in institutional portfolios.

3. The Portfolio-Theoretic Case for Hangar Diversification

3.1 Mean-Variance Analysis: Expanding the Efficient Frontier

The fundamental question for any insurance investment officer considering a new asset class is whether its inclusion in the portfolio improves the efficient frontier, that is, whether the asset’s risk-return characteristics and correlation profile with existing holdings allow the investor to achieve either higher expected returns at the same level of risk or the same expected returns at lower risk. For hangars to pass this test, they must offer a combination of returns and diversification benefits that is not already available through existing allocations.

Consider a representative insurance company investment portfolio consisting of 70% investment-grade fixed income, 10% high-yield bonds and private credit, 10% public equities, 5% conventional real estate equity, and 5% other alternatives. The portfolio’s aggregate return is dominated by the fixed-income allocation, while its volatility is disproportionately influenced by the equity and real estate components. Adding a hangar allocation, funded by a reallocation from conventional real estate or from the alternatives bucket, improves the portfolio to the extent that hangar returns are less than perfectly correlated with the returns of the assets being displaced.

We argue that hangar returns exhibit meaningfully lower correlation with both traditional real estate and fixed income than the conventional property types they would partially replace. The theoretical basis for this claim rests on three structural differences in demand drivers, which we develop in the following subsections.

3.2 Differentiated Demand Drivers

The demand for hangar space is driven by factors that are structurally distinct from those governing the four traditional commercial real estate property types. Office demand depends on employment growth, remote work adoption, and corporate space utilization patterns. Retail demand depends on consumer spending, e-commerce penetration, and foot traffic trends. Industrial demand depends on logistics volumes, inventory management practices, and supply chain configuration. Multifamily demand depends on household formation, housing affordability, and demographic migration.

Hangar demand, by contrast, correlates with corporate profitability, high-net-worth household formation, and executive time valuation, a fundamentally different set of economic variables. Business aviation demand is a derived demand: companies and individuals use private aviation because the value of executive time exceeds the cost of commercial alternatives. This demand is procyclical but responds to different aspects of the economic cycle than retail foot traffic or office lease absorption. The correlation with high-net-worth household formation rather than broad employment growth provides a natural hedge against the labor market conditions that drive office and multifamily demand.

Empirical evidence supports the distinctiveness of these demand drivers. The General Aviation Manufacturers Association (GAMA) reports that the U.S. business aviation fleet footprint grew 61% from 2010 to 2023, and manufacturer backlog exceeds $52 billion, suggesting sustained demand growth over the medium term. This growth trajectory persisted through the COVID-19 pandemic, during which business aviation actually accelerated as corporate travelers sought alternatives to commercial aviation, a period when office and retail real estate suffered severe demand destruction. The pandemic experience provides a natural experiment demonstrating the low correlation between hangar demand and traditional property type demand during the market conditions when diversification is most valuable.

3.3 The Low-Correlation Proposition

To formalize the diversification argument, we structure the correlation analysis across the three primary components of a typical insurance portfolio: fixed income, public equities, and conventional real estate.

Correlation with Fixed Income. Real asset categories generally exhibit low-to-moderate positive correlation with investment-grade bonds, driven by the common influence of interest rates on both bond prices and property capitalization rates. However, the NNN lease structure predominant in institutional hangar investments (where tenants bear most operating expenses, leaving the landlord with a stable net income stream) creates a bond-like cash flow profile with CPI-linked escalation. This hybrid characteristic means that hangar returns share some directional sensitivity with fixed income during normal markets but diverge during inflationary episodes, when CPI escalation provides real return protection that nominal fixed income cannot match. For an insurer whose core allocation is investment-grade bonds, this partial decoupling during inflation is precisely the diversification benefit that improves portfolio resilience.

Correlation with Public Equities. The correlation between hangar returns and public equity returns is mediated by the general economic cycle, as both respond to corporate profitability. However, the relationship is attenuated by the real asset characteristics of hangars, physical capital with replacement cost floors, and by the structural supply constraints that support hangar pricing even during economic downturns. AOPA survey data indicates that 72% of aircraft owners on hangar waitlists wait six months to more than two years, and only 8% of available hangars are rated in excellent condition. This structural undersupply provides a pricing floor that public equities, subject to sentiment-driven volatility, do not enjoy.

Correlation with Conventional Real Estate. This is the critical comparison, because hangars would most likely be funded from or evaluated against the existing real estate allocation. The differentiated demand driver analysis developed above implies lower correlation with each of the four traditional property types than those types exhibit with each other. Office and retail share common sensitivity to consumer and business spending patterns. Industrial and multifamily share sensitivity to population growth and economic geography. Hangars, by responding to business aviation demand, a luxury consumption good with distinct elasticities, offer a differentiated return stream within the real estate allocation.

4. Risk-Return Characteristics Relevant to Insurance Portfolios

4.1 Return Profile

Institutional hangar investments target internal rates of return (IRR) in the range of 12-18%, incorporating a risk premium of 200-400 basis points above core real estate benchmarks. These target returns are achievable through multiple strategies: core income (stabilized T-hangar and executive box hangar portfolios with diversified tenancy), corporate net lease (single-tenant corporate hangars on NNN leases with credit tenants), value-add (acquiring underperforming assets, improving operations and occupancy, then exiting at compressed cap rates), and development (ground-up construction in supply-constrained markets where pre-leasing provides development feasibility).

For insurance companies, the core income and corporate net lease strategies are most directly relevant, as they provide the predictable, income-oriented returns that align with insurer investment policy constraints. Stabilized hangar portfolios at premier airports generate rental income with vacancy rates of 5-10% for well-located facilities, low by commercial real estate standards, with rental escalation of 2-4% annually and operating expense ratios that are favorable relative to more management-intensive property types. The operational simplicity of hangars (no retail tenant coordination, no common area maintenance disputes, no residential regulatory complexity) reduces the variable expenses and management overhead that erode net returns in more complex property types.

4.2 Inflation Hedging Properties

The inflation-hedging characteristics of hangar investments deserve particular emphasis in the insurance context. Life insurers writing long-duration liabilities face the risk that inflation erodes the real value of their investment returns relative to policy obligations. Property-casualty insurers face the risk that claims costs inflate faster than investment returns on premium float. Both insurer types benefit from assets that provide real, rather than nominal, return stability.

Hangar leases provide inflation protection through two complementary mechanisms. First, contractual rent escalation provisions tied to CPI indices or fixed annual increases of 2-4% provide built-in inflation pass-through. Second, the structural undersupply of hangar capacity in most markets provides pricing power that supports above-inflation rent growth at lease renewal. Pennsylvania’s state aviation assessment found the state would need 38% more hangars to meet current demand, and hangars rank 31 out of 32 eligible project types under FAA Order 5090.5 for Airport Improvement Program grant priority, ensuring that federal funding rarely bridges the gap between available and needed hangar inventory. This supply-demand imbalance is structural rather than cyclical, providing a durable foundation for real rent growth.

4.3 Income Stability and Tenant Credit Quality

The tenant base for institutional-quality hangars is distinctively affluent and creditworthy. Corporate flight departments represent Fortune 500 and large middle-market companies with investment-grade or near-investment-grade credit profiles. Individual aircraft owners who base aircraft at premium facilities typically represent the top deciles of household net worth. FBO operators at major airports are increasingly backed by institutional capital (Blackstone, KKR, and Bain Capital among them) providing corporate credit quality behind lease obligations.

This tenant credit profile compares favorably to the tenant risk embedded in conventional real estate allocations. Office portfolios include tenants ranging from startup companies to established corporations, with meaningful small-business failure risk. Retail portfolios have experienced sustained tenant credit deterioration as e-commerce competition pressures brick-and-mortar profitability. Multifamily portfolios face individual tenant default risk that, while diversified across many units, introduces collection challenges and turnover costs. The concentrated affluence of the hangar tenant base reduces the credit risk component of total return volatility.

4.4 The Ground Lease Risk Factor

The primary risk factor distinguishing hangar investments from freehold real estate is the predominance of ground lease structures. Most institutional-quality hangars sit on airport authority land under ground leases with initial terms of 20-50 years. These leases carry three features that amplify risk relative to standard commercial ground leases.

First, most airport ground leases specify that all improvements revert to the airport authority at lease expiration without compensation to the tenant. This reversion-without-compensation clause creates a wasting asset: the building’s residual value to the tenant declines to zero regardless of the structure’s physical condition. Second, hangars are purpose-built for aircraft storage and cannot easily be converted to alternative uses, eliminating the adaptive reuse safety net that moderates reversion risk in conventional commercial real estate. Third, the airport authority is the sole ground lessor at any given airport, creating a monopsony dynamic at lease renewal that suppresses the tenant’s bargaining power.

The relationship between remaining lease term and capitalization rate is non-linear. Properties with 25+ years remaining trade at minimal discounts to fee simple equivalents (less than 10%), while those with fewer than 5 years remaining suffer severe discounts of 50-80% or more. Financing availability tracks this curve: leasehold hangars with 25+ years of remaining term access institutional-grade debt on terms comparable to fee simple properties, while those below 15 years face increasingly restrictive credit availability.

For insurance company investors, this non-linear risk profile is manageable through disciplined investment criteria. An investment policy that restricts hangar acquisitions to properties with 25 or more years of remaining ground lease term, with formal renewal options or demonstrable renewal precedent, effectively confines the portfolio to the portion of the lease-term spectrum where reversion risk is modest and financing conditions are favorable. The risk premium embedded in hangar capitalization rates already compensates investors for leasehold structure; the 200-400 basis point premium over core real estate reflects, in part, the leasehold discount that fee simple investors do not bear.

5. Regulatory Considerations: NAIC Risk-Based Capital and Statutory Accounting

5.1 The RBC Framework for Real Estate Equity

Insurance company investment decisions are constrained by the NAIC’s risk-based capital framework, which imposes minimum capital requirements proportional to the riskiness of the insurer’s asset portfolio and operations. Assets with higher RBC charges consume more regulatory capital, reducing the insurer’s capacity to write new business or requiring additional equity contributions. The RBC framework therefore functions as a shadow price on investment risk, and any analysis of a new asset class for insurance portfolios must address its RBC implications.

Real estate equity held directly by insurance companies is reported on Schedule A of the statutory annual statement and is subject to a base C-1 RBC factor of 11%. This factor was established following a comprehensive review by the ACLI and NAIC in 2021, based on analysis of the NCREIF National Property Index over the 1978-2020 period. The 11% base factor includes a 1.5% cushion above the empirically derived 9.5% factor to account for potential disparities between the index composition and individual insurer real estate portfolios, plus uncertainty surrounding the COVID-19 pandemic’s long-term impact on commercial real estate performance. The factor is subject to a fair value adjustment that can reduce the effective charge when market values exceed carrying values.

For life insurers, the 2021 reform represented a meaningful reduction in real estate capital charges, enhancing the asset class’s capital efficiency. Property-casualty and health insurers face different RBC structures but similarly benefit from the recognition that real estate equity, properly managed, presents lower risk than the prior capital charges implied. The key insight for hangar investment analysis is that the 11% base factor applies uniformly to all equity real estate; the framework does not differentiate between property types, meaning hangars receive the same capital treatment as office, retail, industrial, or multifamily properties despite offering, as we have argued, a superior risk-return profile.

5.2 Schedule A vs. Schedule BA Classification

The statutory accounting classification of hangar investments determines not only the applicable RBC charge but also the reporting framework, disclosure requirements, and, for some insurer types, the effective capital cost. Direct real estate equity investments, including direct ownership of hangar properties or majority interests in hangar-owning entities, are reported on Schedule A. These investments are carried at depreciated cost under statutory accounting, with fair value disclosed for RBC adjustment purposes.

Indirect real estate investments (including interests in real estate limited partnerships, private equity real estate funds, or co-investment vehicles) are typically reported on Schedule BA as “other long-term invested assets.” The default Schedule BA RBC charge for property-casualty and health insurers is 20%, significantly higher than the 11% Schedule A charge for direct real estate equity. Life insurers investing through Schedule BA vehicles may benefit from lower charges driven by NAIC Designation, but the capital treatment remains less favorable than direct ownership in most cases.

This classification distinction has direct implications for the structuring of insurance company hangar investments. Direct ownership or co-investment structures that qualify for Schedule A reporting achieve materially better capital efficiency than fund investments reported on Schedule BA. Insurance investment officers should work closely with statutory accountants and regulatory counsel to structure hangar investments in formats that optimize regulatory capital treatment, favoring direct ownership, joint ventures with operating partners, or separately managed accounts over commingled fund structures where possible.

5.3 Capital Efficiency Analysis

To evaluate the capital efficiency of hangar investments relative to alternative uses of the same capital, we compare the risk-adjusted return per unit of regulatory capital consumed across asset classes. The relevant metric is the ratio of expected excess return (above the risk-free rate) to the RBC charge, a “regulatory Sharpe ratio” that measures how efficiently each dollar of regulatory capital is deployed.

Exhibit 1: Capital Efficiency Comparison Across Asset Classes

Source: Author’s estimates based on market data, NAIC RBC factors, and industry surveys. Excess return calculated over 4.5% risk-free rate.

Exhibit 1 shows that hangars held directly on Schedule A achieve regulatory Sharpe ratios that are competitive with investment-grade bonds and substantially superior to conventional real estate equity, public equity, and most Schedule BA alternative assets. The 11% RBC charge is identical for hangars and core real estate, but the higher expected return for hangars (reflecting the risk premium for leasehold structure, specialized property type, and thinner transaction markets) generates meaningfully more return per unit of capital consumed. Even hangars held through fund structures on Schedule BA, with a 20% default charge, deliver regulatory Sharpe ratios comparable to or better than private equity and public equity alternatives.

This capital efficiency advantage is not merely theoretical. It implies that an insurance company reallocating from conventional real estate to hangars, holding the same dollar amount and the same Schedule A capital charge, achieves a materially higher expected return with no incremental capital cost. Alternatively, an insurer could achieve the same expected return as conventional real estate with less total real estate exposure, freeing capital for other uses.

6. Practical Implementation Framework

6.1 Investment Policy Guidelines

Insurance companies seeking to incorporate hangar investments into their portfolios should begin by establishing explicit investment policy guidelines that address the unique characteristics of the asset class. We recommend the following minimum criteria for institutional-quality hangar investments, calibrated to the risk tolerance and regulatory constraints of a typical mid-size to large insurance company:

Exhibit 2: Recommended Investment Policy Guidelines for Insurance Company Hangar Allocations

Source: Author’s recommendations based on institutional investment practices and regulatory constraints.

6.2 Access Strategies

Insurance companies can access hangar investments through four primary channels, each with distinct advantages for different insurer sizes and capabilities.

Direct Acquisition. Large insurers with existing real estate teams can acquire hangar properties directly, benefiting from Schedule A capital treatment, full control over asset management, and the ability to hold assets to maturity. This approach requires aviation-specific expertise that can be developed internally or accessed through specialized advisory relationships. The direct approach is most appropriate for insurers with total invested assets exceeding $10 billion and existing direct real estate programs.

Joint Venture with Aviation Operators. The insurer provides capital, and an experienced aviation operator provides management expertise, tenant relationships, and market knowledge. This structure preserves Schedule A eligibility while reducing the management burden on the insurer. Joint ventures with FBO operators or hangar development platforms offer the additional benefit of the operator’s local market relationships and aviation industry expertise.

Separately Managed Account. An insurer retains a specialized aviation real estate manager to build a dedicated hangar portfolio within a separately managed account structure. This approach provides professional management and Schedule A eligibility while allowing the insurer to define investment criteria and maintain governance control. This is the recommended approach for mid-size insurers with $2-10 billion in total invested assets.

Commingled Fund Participation. Smaller insurers can access hangar exposure through participation in aviation real estate funds. While this approach sacrifices the Schedule A capital advantage (most fund interests are classified on Schedule BA), it provides diversification across multiple properties and airports with a smaller capital commitment. Private equity fund structures targeting aviation infrastructure (including the platforms established by Sky Harbour, Bain Capital, and others) provide institutional-quality exposure with professional management.

6.3 Due Diligence Considerations

Hangar investments require specialized due diligence that extends beyond standard commercial real estate underwriting. Insurance company investment teams should evaluate, at minimum, the following aviation-specific factors: ground lease terms including renewal provisions, reversion clauses, and airport authority disposition toward long-term tenancy; FAA compliance history and the airport’s grant assurance obligations, which constrain the types of exclusive arrangements authorities can offer; the competitive dynamics of the local aviation market, including nearby airport alternatives, based aircraft trends, and FBO competitive positioning; the physical condition of specialized hangar systems including door mechanisms, fire suppression equipment, and electrical infrastructure; environmental compliance, particularly regarding fuel storage and handling operations; and the airport’s long-term master plan, which may signal future development opportunities or, conversely, potential use changes that could affect hangar operations.

7. Limitations, Future Research, and Conclusion

7.1 Limitations

This paper’s central argument rests on a theoretical analysis of correlation structures and risk-return profiles rather than on empirical measurement of hangar return distributions. The absence of a hangar-specific return index, comparable to the NCREIF Property Index sub-indices for traditional property types, prevents direct empirical estimation of the correlation coefficients and Sharpe ratios we discuss in qualitative terms. The development of such an index, drawing on the growing pool of institutional transaction data from REIT filings, private equity platform disclosures, and airport authority records, represents a critical frontier for future research.

The regulatory capital analysis is based on current NAIC RBC factors and classifications, which are subject to ongoing revision. The NAIC’s Principle-Based Bond Definition project and related initiatives are restructuring the Schedule D and Schedule BA classification framework, with potential knock-on effects on how real estate-related investments are categorized and charged. Insurance investment officers should monitor these regulatory developments and adjust structuring decisions accordingly.

The ground lease risk analysis, while grounded in empirical patterns documented in the broader real estate literature, has not been calibrated to hangar-specific data. Carter’s (2026b) ongoing empirical research on the relationship between remaining lease term and hangar capitalization rates will provide the first quantitative evidence for the non-linear risk curve we describe qualitatively. Until that research is complete, the lease-term risk analysis in this paper should be treated as a theoretically motivated framework rather than an empirically validated model.

7.2 Directions for Future Research

Several promising research directions emerge from this analysis. First, the construction of a hangar return index using institutional transaction data would enable direct empirical testing of the diversification hypotheses developed in Section 3. Second, the application of mean-variance optimization with hangar returns included as a distinct asset class would allow precise estimation of the efficient frontier expansion and optimal allocation weights. Third, an empirical analysis of hangar return sensitivity to inflation, interest rates, and GDP growth, the macroeconomic factor loadings of the asset class, would provide the foundation for dynamic allocation models that adjust hangar exposure through the economic cycle. Fourth, a comparative analysis of hangar investment performance across the 2008 financial crisis, the 2020 pandemic, and the 2022-2023 rate tightening cycle would provide direct evidence on the asset class’s behavior during the market stress events that most concern insurance company risk managers.

7.3 Conclusion

Aircraft hangars represent a maturing alternative real estate sub-asset class that offers insurance companies a portfolio construction opportunity that is currently underexplored and, we argue, underutilized. The asset class provides target returns of 12-18%, risk premiums of 200-400 basis points above core real estate, contractual inflation protection through CPI-linked escalations, and demand drivers that exhibit low correlation with the traditional property types dominating most insurer real estate portfolios. The structural undersupply of hangar capacity provides pricing power and occupancy stability that reduce downside risk, while the operational simplicity of hangars relative to other commercial property types reduces management burden and variable expense uncertainty.

The regulatory capital framework, while not specifically designed for aviation real estate, treats hangars favorably under the current NAIC RBC structure. Direct hangar investments reported on Schedule A receive the same 11% base capital charge as all other equity real estate, meaning the higher expected returns generate superior regulatory capital efficiency relative to conventional property types. Insurers can access the asset class through direct acquisition, joint ventures, separately managed accounts, or commingled fund participation, with the optimal structure depending on insurer size, existing real estate capabilities, and regulatory capital optimization objectives.

The institutional transformation of the hangar market (evidenced by Sky Harbour’s NYSE listing, the entry of Blackstone, KKR, and Bain Capital into aviation infrastructure, and the projected growth of the global market to $9.85 billion by 2033) creates the market depth, data availability, and operational infrastructure necessary for insurance company participation. What was once a niche market accessible only to individual aircraft owners and local developers is becoming an institutional asset class with the scale, transparency, and professional management that insurance company investment mandates require. The question for insurance investment officers is not whether hangars will become a recognized institutional asset class (that transformation is well underway) but whether their portfolios will be positioned to capture the diversification and return benefits before the premium narrows.

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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.