Good morning, and welcome to the Noble Capital Markets Virtual Equity Conference. I'm Joe Gomes, Managing Director and Senior Analyst at Noble Capital. Today, I have the pleasure of introducing Sky Harbour Group. Following the presentation, we will have some time for Q&A. With us today from the company is Tim Herr, Treasurer. With that, I'm going to turn it over to the company. The floor is yours, Tim.
Thanks, Joe, and good morning, everyone. I'm going to run through the presentation for 10-15 minutes, and then we'll open it up to Q&A, and appreciate everyone joining. Sky Harbour, at a high level, we are an aviation infrastructure and real estate developer. We design and construct and then operate and lease the hangars and associated office space that you see in the pictures here. Our main targets are business jets and other general aviation aircraft. That rent business is our primary point, or primary source of revenue, along with some fuel that we sell to our clients. Conceptually simple business. It's securing land at airports around the country. You typically can't own that land because airports are owned by the local county or municipality that they're located in.
We get the land in the form of long-term ground leases, typically out to 50 years. Couple advantages of the ground lease. The first is no real upfront cost in acquisition, like there would be in a fee simple transaction. We actually reduce our total development cost because there is no upfront acquisition fee. But we do pay for it in the form of operating expense, in the form of a lease payment over time. That's one advantage. The other is that it qualifies us for a type of tax-exempt municipal bond called private activity bonds, that we can use to fund our construction with long-term and cheap debt. We'll talk about that in a future slide. But just know that because from a tax perspective, the airport, which is public, is the ultimate, the beneficial owner of the improvements.
From a tax perspective, we're able to issue this type of tax-exempt debt. That's on land acquisition and the benefits of the ground leases. Next, we design and construct the hangars that you've seen in the pictures here. We've internalized some of the design and architecture functions that we previously used to outsource. We've now vertically integrated into doing that. Once they're completed, is the third and probably the most important step of the business, which is leasing and managing them. We provide aviation line services. You see in the upper right picture there. We do aircraft towing. We do aircraft fueling, which, as I mentioned, fuel revenue is a big revenue line item for us. We do other ancillary services to get the aircraft in and out of the hangar and ready to fly.
Our three primary categories of tenant are, the first is the largest. That is high net worth individuals who fly the aircraft, usually for a mix of business and personal use. That is the majority of our clients. The next category is Fortune 500 companies and other corporate fleets that own and operate their aircraft for their own corporate use. Good example there is Chevron Corporation in Sugar Land, Texas, right outside of Houston, which uses our hangars to operate their fleet of aircraft. The last category is a mix of other general aviation users. It is a mix of charter companies. We have a couple government clients, such as the Tennessee Bureau of Investigation in Nashville, for example. Pretty much anyone else who interacts with the general aviation infrastructure system in the United States. That is the business.
It is get the land, design and construct, and then lease and operate. On our finances, we look at the property level. We target low- to mid-teen NOI yields, or yields on cost. I mentioned the advantage of the ground lease, being able to issue tax-exempt debt to finance these. Because of that low cost of financing, we can actually drive our ROEs much, much higher than that low- teen NOI yield, and those numbers we can talk through in a later slide. That is the main business. Couple of macro slides here. The chart in the middle kind of explains the macro tailwinds of our business in one chart. You can see that the total square footage of the business aviation fleet has grown every year. Couple of things driving that.
One is the number of aircraft is increasing, so that is driven by slowing retirements, so aircraft are being used for longer. The average number of aircraft coming off the line from the plane manufacturers is also increasing every year. So the number of aircraft is increasing, and then perhaps more importantly, the average size of those aircraft are increasing. The red bars at the bottom, you can kind of see our proxy for the largest business jet aircraft, which are greater than 24-foot tail height. That Global 7500 here that you see in the upper right-hand picture. Those big aircraft have increased at a faster rate than the square footage of the fleet as a whole.
It is, again, number of aircraft increasing, and the average size of aircraft are increasing, and that square footage of the total aviation fleet is essentially outgrowing the available hangar space that has previously been constructed in the U.S.. That hangar space was historically built by an industry called FBOs, or fixed-base operators. We will compare and contrast how we differ from an FBO in the next slide. A couple of factors driving this lack of hangar space across the country. There are no new airports being built, so the last airport servicing a major metropolitan area was the Denver International Airport in the early 1990s, so over 30 years ago. So essentially where airports are now, they are landlocked because they typically cannot expand much to grow their overall footprint because of other development around them.
The available land at airports is shrinking over time as more development gets built. Not just companies like ours that do aircraft hangars, but logistics centers, commercial terminals, and other entities that compete for this scarce airport land. The last factor is who actually builds the hangar space. Airports themselves don't build it. They don't want to spend taxpayer money on aircraft hangars. So, like I mentioned, they've historically outsourced to the FBOs to build hangar space. But if you think of the FBO business, their primary revenue driver is fuel sales. So they typically build hangars because they have to, not necessarily because they want to. Again, they'd rather focus on fuel sales rather than spending CapEx to build hangars. While 20, 30, 40 years ago when business aviation was just really beginning, FBO hangars were enough to house the fleet.
But as we saw in the previous slide, that growing square footage, FBOs have not built enough hangar space to capture that increase in that square footage. That was the opportunity that our CEO and founder, Tal Keinan, saw when he started the business about eight years ago. Was that there needed to be another company out there that partnered with airports to bring this needed hangar space to the airports that service major cities around the country. So that's on the supply side of hangar space, and those two dynamics are what we're trying to take advantage of for the business. Biggest difference between us and the FBOs, again, FBOs are the legacy players on airports. We don't service transient aircraft.
We only service our own base residents, so we classify ourselves as a home base operator rather than a fixed-base operator, which focuses on fuel sales, particularly those visiting the airport, because they can generally charge more in fuel margin to those on the road. So, that's one of the big differences. The fact that we don't service transient aircraft means we have a lot fewer operations. Just a general quieter campus environment than the FBOs do, and we're able to offer a higher service level than FBOs do because of that lower operational footprint. When you live with Sky Harbour, your aircraft has its own dedicated parking space and all the ancillary benefits that come with that.
So it's not just the fact that your aircraft will always be in the hangar when it's at home, it's that it's your own hangar, and so you have the privacy, the security that comes alongside that. Whereas if you're based with an FBO, you generally have to go through their public terminal to access your aircraft. There's just other issues with accessing your aircraft through an FBO that you don't have with Sky Harbour because, again, it's your own space that you, as an aircraft owner, control. Brief overview of where we're operating. The green circles on the map are the eight campuses that we currently have operating. That's everywhere from Miami Opa-locka in South Florida out to San Jose International in the Bay Area and a number of airports in between. So that's our eight in operation.
We have a total of 23 ground leases announced total. The last of which, number 23 there you see, was Van Nuys Airport, which is probably one of the top three or four business aviation airports in the country, kind of rivaling Teterboro and White Plains in the Northeast. Of course, Van Nuys is in Southern California servicing the L.A. area. Just a very, very busy and attractive general aviation airport in the L.A. area. That was our recently announced. You can see the eight in operation. We have four under construction. That is everywhere from Orlando to Bradley International outside of Hartford to Salt Lake City in Utah. Then we have an additional 11 under various stages of pre-development. So we are at 23 ground leases now. No plans to stop.
This is still one of the core competencies of the business, is our ability to convince airports to let us come in and build these hangar spaces based on our experience and our successful partnerships with all these airports around the country. We spend a lot of time looking at airports and talking with them to increase the number of airports that we are located at. I will blow through these. I mentioned we have vertically integrated into a few design and construction areas. We do our own internal design and architecture work now. We manufacture our own hangar space through a captive metal building manufacturer called Stratus Building Systems in Texas, and we have also started doing our own general contractor work through a captive general contractor called Ascend Aviation Services.
We have kind of internalized a lot of the general contracting and construction processes, just in an effort to drive our costs lower, which we have had a lot of success with over the past year as we have brought these in-house. Recent operating results, really an inflection point of the company where we are now at a scale where our profitable operating businesses, the eight that you saw previously, and then the additional ones to come in the next few months and years, we are at a scale where we are covering our corporate costs and each new airport that we are adding to the pipeline as we finish construction and lease up, is added to that bottom- line.
So really inflection point of the company now where we are turning EBITDA positive into the end of this year and certainly into 2027 as we complete some of those airfields in yellow that I mentioned earlier.
Again, they will finish construction, and we will start the lease-up process through the end of this year into 2027, followed by the additional ones that we are starting construction on, going into the next few years. I mentioned the tax-exempt debt we issue. We issued our first tranche that financed the first six of our airports, in 2021. That was long-term debt. 33-year final, 25-year average life at 4.18%, so very low cost of debt capital on our first issuance. That was for our first portfolio of projects. The second portfolio of projects, the ones currently under construction and the ones about to start construction into the end of this year, are being funded by a funky looking tax-exempt construction loan facility with JPMorgan.
It has a five-year maturity, essentially, where we'll complete the projects, get rid of construction risk and lease-up risk, get them cash flowing, and then we'll go longer into those private activity bonds that I talked about earlier. We did a floating to fixed swap at 4.73% on that five-year JPMorgan facility. Then we're pairing that with a type of sub-debt that essentially is functioning as equity for the JPMorgan facility. It has a similar term, so five-year maturity, and we issued those at 6%. About 90% of the capital stack for our ongoing construction, it's comprised of the JPMorgan facility, and the Series 2026 Sub-Debt. It's about 90% of the capital stack, with the remaining 10% being straight equity.
It just gives us a very low cost of debt capital on a blended basis, about 5.5% as we fund portfolio two through the end of this year into 2027. I already talked about where we're in construction. You can kind of see the airports that are coming. It's a robust pipeline of construction coming over the next few months and into 2027 and eventually 2028. So, a lot of visibility into our future cash flows as all these construction projects finish next year and beyond and then come online, and adding to the bottom- line of Sky Harbour. Let me just finish with a final slide on the case study on phase two at Opa-locka. That's Miami Opa-locka that we finished earlier this spring.
We had a phase one there that completed in 2023, and that was constructed and leased up a few years ago, and we just finished our phase two, so not quite, but almost doubled the size of the square footage. We're seeing benefits on two areas. One is, OpEx economies of scale. Even though the square footage doubled, our campus OpEx didn't double. Because we were fully staffed there for phase one, and opening the phase two didn't require twice the number of people, for example. It maybe increased our personnel by one or two people, but it didn't double the cost of our OpEx. So on the cost side, it makes the combined campus more efficient.
On the revenue side, you can kind of see the strength of where we start when we first come into an airport versus where we end when we finalize and eventually finish leasing up a phase two. So Opa-locka, the initial leases struck there in 2023 were at $32.50. This is all per rentable square foot, by the way. So $32.50. The last ones in phase one were signed at $45 per square foot. It kind of gives you the sense that as we keep leasing up a phase of hangars and the scarcity value increases, we're able to push prices up to a higher level than when we first enter a market. So that all created an average of the phase one being about $41 per square foot.
Phase two, the advantage there is we had a pretty robust demand and wait list built up from phase one when we were full there and operating for the last couple of years. When we finished the phase two, on the strength of that demand and the strength of that wait list, you can see that the average phase two lease rate of $51 is actually higher than the highest lease rate in phase one. It just gives us confidence in the business model of seeing the success of leasing up a phase one, even if it takes a little bit of time. Then you see the demand build for a phase two, and then once phase two completes, using that built-up wait list to efficiently fill up that phase two at higher lease rates than the phase one. A lot of success here at Opa-locka.
This is one of the fields that is powering us into that inflection point that I talked about where we are turning EBITDA breakeven, and we should be finished leasing up here in the next month or two as we fill up that phase two. Why do I end it there? I will turn it over. I know I went a few minutes over, but turn it over for some questions.
Thanks, Tim. Really insightful presentation. Let us start off, maybe you can talk a little bit about, at San Jose, occupancy exceeds 100%. Maybe you can just give a little bit of touch on that as to how do you exceed 100% of occupancy and how many of the other facilities or campuses, does a similar opportunity exist where you could be up and over 100% of occupancy?
Yeah, it is a great question. We have two models in the Sky Harbour business. One is fully private. That is where an aircraft or an aircraft owner has their aircraft or sometimes multiple aircraft in a single hangar where they take the whole thing. In that case, we are essentially locked in at 100% occupancy, right? Because it is someone who owns the entire hangar and they are just renting that entire hangar. Where we can get that greater than 100% effective economic occupancy is in what we call our semi-private model. That is when we take multiple aircraft owners and essentially you still have your own guaranteed spot in the hangar. When you are at home, you will always be hangared, unlike an FBO where you may sit out on the ramp if everyone is at home.
You still have your guaranteed spot in the hangar, it is just that you essentially share with a roommate to help defray cost. We call this our semi-private model. Probably an extreme example, but you can kind of see in our prototype here, you can see that you can essentially, what we call in the industry, stack aircraft. If you take an aircraft, it is wingtip to wingtip and nose to tail, and create a box around that, you can see that there are empty space in the corners. You can essentially put the wing of one aircraft into the empty corner of another aircraft and essentially sell that same space twice. Again, if you have the right mix of aircraft and you have the right hangar size, you can essentially stack those aircraft efficiently where you are getting over that 100% occupancy.
A site like San Jose where we have one big hangar there, again, it is probably not as extreme as the picture here, but we are able to put in multiple aircraft into a single hangar that overlap each other and get that higher than 100% occupancy. Again, it is not going to happen everywhere because sometimes it is that fully private, but places where we are heavily semi-private, that is how we get over that 100% occupancy.
Okay. Thanks for that. You talked about construction costs. I think on the second quarter call, you cited costs of about $242 per square foot. I know you have been doing a number of things to help bring that down. Where are we today? What is the new target for construction cost? How low could that possibly go?
Yeah, I would say we are still right around there. Our goal in the business, right now, it is trying to bring that down. There is probably not too much room to bring that down much further, and that $242 per square foot is hard cost. We do some soft costs on top of that which bring our development cost closer to $300 per square foot. But that $242 per square foot, look, if we stay there for the next couple of years, that will actually be a win because there is macro headwinds to construction costs, everything from kind of the AI buildup that is pulling certain subcontractors in different directions to input price increases and that sort of thing. I think if we stay at that $242 per square foot , that is going to be a big win for us, although, of course, we are trying to get it south of that.
Okay. How many additional operating campuses can the current corporate organization support before you need to expand on that?
Honestly, we're pretty much done growing at corporate. The team is big enough to support really up to probably 40 or 50 airports, because all the action kind of takes place at the campus. As we bring a campus online, that operating team is growing. Each campus has its own operating team. Of course, from an employee headcount and that sort of thing, we're going to grow substantially over the next few years as each of those fields comes online because we're going to have staff there and operations going on at the property level. But at the corporate level, we're really not going to grow that much because we're already staffed sufficiently to essentially meet our growth targets by adding those fields over time.
Corporate expenses we're expecting to stay relatively flat over the next few years, even though you'll of course see our total headcount and total OpEx increase as each of those fields comes online. But that's just part of the business. Of course, you'll see the commensurate revenue increases, but the headcount increases with the OpEx at each of the fields.
Okay. Then maybe talk a little bit about the competitive environment. You're pursuing a number of airport sites. There's limited land. There are other competitors out there. Are they getting more aggressive on this limited resource on their bidding? Are airports asking for higher rents? Maybe you could just talk a little bit more about the competitive environment today.
Yeah. A couple of competitors we have. One are the FBOs. They are the legacy players in the industry. We obviously overlap a lot with who we target for our clients. If an airport is bringing a new FBO on the field, we certainly compete with them for land. Generally, an airport will designate land to three different areas. One is commercial operations, so that is commercial terminals and increasing future commercial operations. We and the FBO compete on that. The other big one is logistics. So they may designate some land for logistics centers. That is everyone from FedEx to Amazon and the big players in that business. Again, we are not going to compete for land that is designated for logistics. It is really the land designated for business aviation that we are going to compete for. Sometimes it is the FBOs. They are probably our closest competitor.
Other direct competitors out there, what we have seen is some kind of local real estate developers who have done one-off developments that look a lot like Sky Harbour. Sometimes we compete with local developers, but no one is really doing it at scale like Sky Harbour is doing in terms of actually competing for greenfield land. I will say one area where we have seen some increased competition is in the M&A side. We do not do M&A that often, but there is an increase in interest in private equity and other investment funds in the aviation industry. We have started to see some kind of financial players come in to try to get existing assets. Again, the actual competitors for greenfield development, have not seen that many of them yet.
Thanks, Tim. We have come to the end of our allotted time. We have covered a lot of ground today and got significant insight into what Sky Harbour does, its markets, and opportunities. Tim, we appreciate you and the company taking the time to participate in our conference, and we wish you and the company the best in the future. Thanks again.
Thanks so much.