Kenai is gradually changing its practices towards business owners who lease city land, some of whom say the city’s reluctance to sell land has disincentivized business development.

On Wednesday the Kenai city council voted to allow a long-disputed sale of city land to real estate company Schilling Rentals and the possible sales of 10 other airport properties.

The airport land issue stems from Kenai’s history as a military airfield in the 1940’s and 1950’s. The Federal Aviation Administration inherited this land after it was decommissioned and gave approximately 2000 acres of it to Kenai’s municipal government after the city’s chartering in 1963. Attached was a legal requirement that some of it — an approximately 1,325 acre area surrounding the airstrip, designated the airport reserve — remain dedicated to aviation use.

Many of the original 2000 acres of the airfield have since been sold to private and commercial owners. In recent years sales of airport land have been rarer as the administration and council have preferred instead to lease airport properties for the airport-funding revenue generated by annual lease payments.

In April 2016 Kenai sold a .66 acre airport property at the corner of the Kenai Spur Highway and Mainstreet Loop to businessman Ronald Smith after Smith offered $170,400. That was the first time the city had sold airport land into private ownership since 2013, when it sold the present location of Bargain Basement thrift store.

Since the Smith sale Kenai administrators have received a growing number of land offers from current lessees. Schilling Rentals has made offers to buy an airport lot it leases at the corner of Main Street Loop and Trading Bay Road since 2012, according to an email to council members from Schilling representative Duane Bannock.

Schilling, owned by David and Michael Schilling, is one of the Kenai businesses that owns a building while leasing the airport-owned land that building from the city. Schilling owns and manages an office complex, which Banock referred to as the Decor Building — on the property it sought to buy. Schilling already owns two adjacent properties in the same block, which contain the Trading Bay Professional Center, a similar but larger office complex. The Decor Building covers approximately 0.83 acres of the property, while an undeveloped woods covers the remaining approximately 1.43 acres. Bannock wrote that Schilling plans to remodel and expand the building but that the project “will only be finished on land owned by Schilling Rentals.”

Bannock has publicly advocated for Kenai to sell the Decor Building property to Schilling since at least September 2015, and wrote in his email that Schilling had previously offered $250,000. He made a present offer of $300,000 for the property, stating that this amount is 120 percent of its fair market value, exceeding the 119.49 percent of fair market value paid by Smith in April.

Council member Tim Navarre proposed making the sale to Shilling in an ordinance scheduled to be introduced at the council’s June 1 meeting. The introduction was postponed by a motion from Council member Terry Bookey because Navarre, its sponsor, was absent. When the ordinance had its hearing at the council’s July 6 meeting, Navarre successfully moved to postpone the hearing and vote until August.

Following Navarre’s sale proposal on Wednesday’s agenda was a resolution introduced by council members Brian Gabriel and Henry Knackstedt to establish a policy for selling ten airport-owned properties on which lessees have own buildings they’ve either built or purchased. Schilling’s proposed purchase was one of the 10 included in this policy, which set different conditions than Navarre’s ordinance for the determining the property’s price. Debate ensued.

Navarre’s ordinance — up for discussion and vote before Knackstedt and Gabriel’s — would have required a market appraisal of the property to be made before the sale, setting the property’s price equal to or greater than an appraised amount, adding that it not be less than $298,737.

Knackstedt’s ordinance would allow the 10 subject airport lands to be sold for 125 percent of the land’s raw value (the estimated value it would have as bare, undeveloped ground). The raw land value would be determined by a market study and appraisal to be paid for by the prospective buyer.

Although Navarre urged the council to consider his proposal separately from the later one, Knackstedt proposed a successful amendment to make the Schillings sale price consistent with his and Gabriel’s later ordinance — equal to 125 percent of the land’s raw value.

Knackstedt said that using a land appraisal conducted in 2015, the price of the Decor Building property under his and Gabriel’s resolution would be $312,500, or $13,763 more than Navarre’s proposed minimum sales price. However, the Knackstedt-Gabriel policy would require a new appraisal before the sale, likely creating a different price.

Navarre attempted to find a middle value, proposing changing the 125 percent requirement to 120 percent. The motion failed for lack of a second.

Knackstedt’s change was passed with opposing votes from council members Bob Molloy, Terry Bookey, and Mike Boyle. Boyle is a long-time opponent of airport land sales, preferring leases. Molloy said the property was worth more than was offered, citing a city council work session at which a price of $400,000 was discussed.

Navarre — whose family owns the Kenai Arby’s franchise and other local business properties — said Kenai’s land lease practices aren’t in the interest of business.

“That’s one reason so many people asked me to run for council — so that there’s a business view on this council, because they’ve been after these issues on the airport land,” Navarre said. “…We wouldn’t have development in the city of Kenai if private industry didn’t make those investments and the airport didn’t sell that land.”

In a memo attached to their ordinance, Knackstedt and Gabriel stated that they had selected the 10 leased properties in their sale plan because they were outside the airport reserve and had developments built them by the tenants.

One reason for offering the 10 properties, according to the ordinance text, is a recognition “that at least some lessees anticipated an opportunity to purchase the subject properties and this assumption may have influenced their business decisions.”

The most recent of the 10 leases was made in 2004; the oldest in 1967. They included the property occupied by Olga’s Jewelry Store, owned by Sid Morris, and the Big Dipper Car Wash, owned by Pat and Mary Doyle.

Morris and the Doyles have both testified previously about their desire to own the land beneath the buildings they’ve erected. Don Loftis testified at Wednesday’s meeting on behalf of the Doyles, who had leased their land in 1983, and said many business owners who took leases at that time had intended to eventually own the property.

“Pat Doyle said when he leased the land the understanding he had with the city was that he would lease the airport property and whenever they decided they didn’t have future expansion, he could purchase it,” Loffis said. “The normal formula was for current appraised value. I understand from other lease holders that it was their understanding that when they got more monetarily stable they could negotiate a sale in the same manner.”

Property owners will now be able to negotiate with the city administration to buy their properties after the sales plan passed with opposing votes from Boyle, Molloy, and Bookey.

Reach Ben Boettger at ben.boettger@peninsulaclarion.com.