Lessors of Real Property, NEC

SIC 6519

Industry report:

This category covers establishments primarily engaged in leasing real property, not elsewhere classified.

The lessors of real property industry encompasses companies that own and lease, or only lease, land used for airports, farm land, sports facilities, commercial timber operations, some types of lodging, and natural resource excavation to other organizations. Industry participants typically do not engage in the enterprise conducted on their land. About 32,189 companies were engaged as lessors of real property not elsewhere classified in 2010, according to Dun & Bradstreet's Marketing Solutions. These establishments employed approximately 86,320 workers and generated $7.6 billion in annual revenues.

Real estate lessors bring together owners of land and people who are looking for property on which to conduct a certain business activity. They benefit their clients by providing expertise about location, appraisal, and conveyance of legal rights to property. In contrast to real estate brokers, lessors arrange the conveyance of property rights for a limited time rather than permanently transfer ownership; however, lease agreements are often made for as long as 100 years.

Lessors in this industry are typically entrenched in a specific market niche. A company that specializes in leasing timberland, for example, would have knowledge of timber rights, tax codes, logging practices, and other factors specific to that industry. When it matches a land owner with a compatible lessee, the leasing company helps the two parties negotiate terms and secure a legally binding agreement. Land holding companies often find clients and handle lease arrangements themselves.

In addition to specializing by property function, many real estate lessors focus on one locale or region where they accumulate an in-depth knowledge of local zoning codes, demographics, and land values. As a result of geographic and functional diversification, the industry is highly fragmented. In the late 2000s, the top 50 firms held less than 7 percent of the entire market.

The real estate leasing industry saw rampant growth in the middle of the twentieth century. Besides general economic expansion that boosted leasing activity, the emergence of eminent domain and other real property controls vastly increased the complexity of land rights and transactions. Furthermore, property lessors enjoyed an unprecedented business boom during the mid-1980s. By the late 1980s, however, a virtual depression in most real estate sectors pummeled many industry participants. Most segments of the leasing industry continued to recover from continued economic malaise through the late 1990s.

As the economy rebounded and interest rates remained low from 1993 through 1996, the real estate market in general also improved. Demand for most positions in the real estate industry increased, according to the Bureau of Labor Statistics, especially for leasing agents with financial and computer skills. Although salaries varied by region and specialty, experienced property lessors typically earned commissions of $50,000 to $100,000 per year.

In the late 1990s, a series of large-scale leasing transactions reflected the positive environment for the industry. When Denver opened its new $5 billion international airport, the older Stapleton Airport became the target of redevelopment that included short-term leasing agreements. The airport's 60 existing buildings (including offices, hangars and the terminal itself) were put on the leasing market in 1995, and a third of the 1.5 million square feet of space was quickly rented to new lessees. Incentives by the city, such as options for extensions of the short-term leases that were limited to five years and credits to tenants for making improvements, were a major enticement to potential tenants.

In 1996, the Cross Timbers Oil Company sold its Tyrone gas plant, which spanned a field in Oklahoma and Kansas, to Nations Bank Corporation and BancBoston Leasing Investments, Inc. for $28 million. The leasing companies then leased the plant back to Cross Timbers under an eight-year renewable lease. Cross Timbers seized this lucrative opportunity in order to reduce the debt level it had accumulated earlier in the decade. Also in that year, Bethlehem Steel Corporation sold a major West Virginia coal mine to A.T. Massey Coal Company of Virginia. The sale to Massey, the fourth largest U.S. coal producer, included mineral rights to the West Virginia mine as well as the leasing of other mining facilities. Another owner of mining land, United Park City Mines Company of Utah, stopped mining operations and started to develop, lease, and sell Utah real estate. Over half of its 8,300 acres of surface land in the late 2000s was leased to ski facilities.

In the airport leasing sector, four airports, including Los Angeles International and Denver International, filed claims against bankrupt United Air Lines to force the airline to pay on leasing agreements. In January 2005 a U.S. District Court declared that United was liable for $59 million in revenue bonds, which were a condition of its airport lease at Los Angeles International. Additionally, the court ordered United to repay $260 million to Denver International.

After suffering through a recessive economy in the early 2000s, the real estate market thrived in the mid-2000s, fueled by increased consumer, commercial, and industrial activity and historically low interest rates. The oil and gas industry also experienced an upward trend. For example, 80 companies submitted high bids worth more than $342 million to the Mineral Management Service, a division of the U.S. Department of Interior, for leasing rights to 21.4 million acres of offshore drilling in 2005. In addition, the Bureau of Land Management auctioned oil and gas exploration leases for nearly 50,000 acres in Arkansas's natural forest lands.

Real estate property lessors suffered along with the rest of the economy during the subprime mortgage crisis and economic recession of the late 2000s. In addition, the April 2010 explosion on the offshore drilling rig Deepwater Horizon off the coast of Louisiana and the resulting oil spill--the largest in U.S. history--prompted the federal government to discontinue all offshore drilling activity.

One of the country's largest land lessors remained the U.S. government. In 2010, the Bureau of Land Management (BLM) managed more than 245 million acres, primarily located in the West. Under the terms of the Federal Land Policy and Management Act of 1976, the BLM offered both competitive and noncompetitive land leases opportunities for oil and gas exploration and development. A lease was normally 10 years in length and could be renewed. At the start of the second decade of the twenty-first century, the BLM was expanding its reach to include solar and other types of renewable energy. According to the agency's website, it held 23 million acres of public lands with solar potential in six states: Arizona, California, Colorado, Nevada, New Mexico, and Utah. Wind, geothermal, and biomass energy sources were also being developed.

Many private and public companies participated in the industry in the early 2010s. For example, CKX Lands was a lessor of oil and gas mining, timber, and agricultural property. The firm garnered $1.7 million in revenues in 2009. CKX, which owned 14,000 acres in Louisiana and generated income solely on royalties generated from lease agreements, employed just four people in 2009.

Miller-Valentine Partners of Ohio, which in engaged in real estate leasing agreements, had total estimated revenues of $8.6 billion in 2004. AMB Property Corporation of San Francisco specialized in industrial property and managed more than 1,000 sites totaling 155 million square feet in about 50 metropolitan areas. The company reported revenues of $633.8 million in 2009.

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