3/27/2016 | Source: Banker & Tradesman | By Read Original Article][
Over 100 million East Coast air travelers rely on Boston-based Marketplace Development every year when they need to grab last-minute travel supplies or lunch during a layover. The nation’s second-largest airport concessions manager, Marketplace develops and manages retail services at Washington Dulles International and Ronald Reagan Washington National, Philadelphia International Airport and Laguardia Airport’s terminal B. Paul McGinn co-founded Marketplace with Robert Weinberg, a fellow former Massport real estate executive. Although structured as a separate company, Marketplace shares its offices at Park Plaza in Boston with New England Development, and it partners with NED on financing, leasing and marketing services.
Q: How does the Marketplace business model work?
A: We saw an opportunity in the early ’90s as some airports were beginning to question the model they were using for developing the concessions within their terminals. Most of them handled it in-house through an RFP, typically for “retail,” which was shorthand for newsstands and food and beverages. Two operators would get control of the whole terminal. Typically they were selected on a high-bid basis, meaning a high rental payment to the airport. And they were given a significant term to operate their concessions. Ten years would be on the short end of a deal.
The problem was it was the same model as anyplace that gets accused of treating the public as a captive audience; the airport was getting its money, but it wasn’t getting good service or street prices. It was cultivating an environment that was leading to dissatisfaction in the traveling public. So some airports started using the developer model, where companies like ours would be given the opportunity to come up with a development plan and service activities within the terminal.
Q: So there’s a bigger capital investment?
A: Think about it the way a developer approaches any project from conceptualizing to planning. There’s goals that are non-economic, like local and minority participation. There’s an agenda of items the airport is looking to optimize. The developer is an important part of that plan. In many cases, places where we work have required us to bring investment to it. That investment gets put into the terminals in soft costs, planning and design, infrastructure. Sometimes these buildings need significant investment. There’s investment in graphics and design and sign work. It’s an environment where people move quickly. It’s a comprehensive approach.
Q: Does the airport operator generally give you direction on the mix of tenants, uses and local versus national retailers?
A: Typically we give them a plan that is trying to achieve the goals they lay out. It’s their real estate, ultimately, so they have rights of approval. And then we work with them to lease it and to manage it. We’re very conscious of getting the mix right, in the variety of food types and being aware of what gets in in terms of local brands versus national brands. A lot of airports are looking for a “sense of place.” In a world where things have become fairly homogenized, airports tend to see themselves – correctly – as being gateways to their communities. It’s really important, in that the first and last impression many people have of a community is coming and going from an airport.
So local tenants create that sense of place. In Washington, we put in a place called Ben’s Chili Bowl. It’s an iconic Washington institution that’s been there for 50 years. You see clips of the president having a Chili Half Smoke there when he slips out of the White House.
Q: How are deals structured?
A: Like the deals in any commercial project, typically we are looking for a minimum rent and some percentage participation as sales levels go up. The airport spaces tend to be appealing because there’s predictable traffic. There’s long hours of operation, but the return is there because there is traffic at 6 a.m. and 10 p.m. So the rent deals reflect there’s significant opportunity there. It’s an environment where the primary function is not retail. Operating costs and construction costs are high because you’re doing things in a secure environment. There are limits on hours of construction, which affect cost. Those things affect the economics of the deal.
Q: What retail categories thrive in an airport more than in a typical shopping mall?
A: Given the changes in aviation over the past decade, you used to fly anywhere and got something to eat. Once in a while, it was even half-decent. Now the world has changed. Unlike a shopping mall, the dominant demand is on the food and beverage side. For us, that’s where a lot of the action is. It used to be in airports, the key component was the newsstand. That world has changed too. Readables have changed to electronic format. Hudson News and all of the companies have turned more to convenience shops. They call themselves “travel essentials.” It is more sundries, beverages, grab-and-go snack items, a lot of electronics.
Q: Do most airports currently regulate retail pricing?
A: In the jargon in the business it’s called “street pricing.” The fundamental concept is to mirror prices on the street. In some places they modify to say it’s OK to have “street-plus” – some margin. In some cases that’s appropriate, because it reflects that it’s more expensive to operate there.
Q: Interested in expanding to your hometown airport?
A: (Logan) is coming up (for a new contract) later this year. It’s something we’re very interested in. It would be a great opportunity to do something right in our hometown. Massport is going to make their announcement later, but our understanding it will involve all five terminals.
McGinn’s Five Favorite Ski Areas:
- Alta, Utah
- Whistler/Blackomb, British Columbia
- Big Sky, Montana
- Beaver Creek, Colorado
- Sugarbush, Vermont