CITY OF BANNING
STAFF REPORT

Adopt Resolution 2026-148

Resolution 2026-148 is the culmination of several years of discussion regarding the future of the Banning Municipal Airport and potential reuse of City-owned airport property. That discussion includes the 2016 Airport Feasibility Study; City Council’s 2017 goal to close the airport as soon as legally permitted and its 2023 direction to continue those efforts; negotiations with Hillwood under the 2023 Exclusive Negotiating Agreement; and the City’s more recent strategic planning and fiscal sustainability discussions. In light of the serious fiscal challenges facing the City, redevelopment of the airport property has become an important component of the City’s long-term fiscal sustainability strategy. This staff report summarizes the history and policy discussions leading to the proposed resolution and the non-binding term sheet before the City Council and is presented with staff's recommendation to approve Resolution 2026-148. 

Airport Feasibility Study

On September 13, 2016, the City Council received the Banning Airport Feasibility Study, which evaluated the Banning Municipal Airport as a land use and considered the potential closure and future use of the airport property. The study found that the airport faced challenges competing with nearby general aviation airports, challenges with a decline in general aviation around the state and nation, and concluded that industrial development appeared to be a more productive use of the property than continued municipal airport operations. The study recommended that the City focus on future land use options, including industrial development.

City Direction on Closure of the Banning Municipal Airport

On April 25, 2017, the City Council adopted Resolution 2017-44, establishing closure of the Banning Municipal Airport, as soon as legally permitted, as a City goal. On June 13, 2023, the City Council adopted Resolution 2023-109, directing the City Manager to continue efforts to close the airport as soon as legally permitted and reaffirming the prior direction. Any closure remains subject to applicable federal approvals and City action.

Exclusive Negotiating Agreement with Hillwood

On December 12, 2023, the City Council adopted Resolution 2023-187 approving an Exclusive Negotiating Agreement (ENA) with Industrial VI Enterprises, LLC, an affiliate of Hillwood, for the Banning Municipal Airport properties. The ENA provides a framework for exclusive negotiations and contemplates a non-binding term sheet as a basis for negotiating agreements, including an option agreement, disposition and development agreement, and ground lease documents ("Definitive Agreements").

The proposed Pre-Development Term Sheet is the non-binding term sheet contemplated by the ENA. It describes preliminary terms for Hillwood to pursue entitlements and, if later approved, lease and develop portions of approximately 232.41 acres of City-owned property. The conceptual development program identifies approximately 175.70 net acres for six buildings. The City would retain fee ownership of the property, and lease interests would be granted in phases. The City would set aside at least 20 acres as a City Parcel for a use and user selected by the City.

FAA Reauthorization Act of 2024

On May 16, 2024, the President signed the FAA Reauthorization Act of 2024. Section 756 provides for the release of the City from FAA-enforceable restrictions on use, encumbrance, conveyance, and closure of the airport. Before that federal release, the City must transfer: (1) fair market value for 20 acres purchased with a 1983 FAA grant; (2) the unamortized balance of federal airport development grants, excluding land grants; and (3) at no cost, City-owned airport and aviation-related equipment that the FAA or Caltrans determines is salvageable for use at other airports. 

Strategic Plan and Fiscal Sustainability

On February 24, 2026, the City Council approved the Strategic Plan, “Banning 2030 – Designing the Future TODAY.” The plan recognizes the connection between economic development and the City’s long-term fiscal sustainability. Strategic Initiative 3b (Inventory and Activate Underutilized Land in the Downtown) focuses specifically on activating underutilized land in downtown Banning. Although it focuses on downtown, it reflects a broader principle: City-owned land can support economic development and sustainable revenue generation. Redeveloping the Banning Municipal Airport is consistent with that principle.

Strategic Initiative 4a (Banning’s Workout Plan to Fiscal Sustainability) focuses on bringing the City’s financial records current so the City can clearly understand its fiscal position. It also recognizes the need to establish a sustainable long-term financial position for the General Fund and Internal Service Funds. Staff's recommendation for approval is consistent with this initiative. 

At the May 14, 2026, fiscal sustainability workshop, the City Manager presented the City’s fiscal position and discussed options for stabilizing the General Fund and improving long-term sustainability. The discussion identified three primary strategies (the “three-legged stool”) for achieving sustainable fiscal health: (1) a sales tax measure; (2) Community Facilities District (CFD) revenue to fund ongoing services for new developments; and (3) economic development, including the Sunset Crossroads Project and redevelopment of the Banning Municipal Airport, which would generate recurring City revenues. Approving the proposed term sheet would move the City toward that potential.

Proposed Term Sheet and Future Review

The term sheet provides a preliminary framework for a phased, long-term ground lease transaction. Hillwood would be responsible for pre-development, entitlement, environmental review, design, engineering, and construction costs, subject to the terms of future agreements. The term sheet also outlines rent, option payments, a public benefit fee, potential community contributions, development impact fees, a municipal services community facilities district, and infrastructure improvements.

The term sheet expressly preserves the City Council’s discretion. It is non-binding, does not commit the City to the proposed project, airport closure, or disposition of any property interest, and does not limit the City’s police powers or land use authority. No definitive option, ground lease, or disposition and development agreement may be approved or take effect unless and until the required environmental review is completed and the City Council separately approves the applicable agreements and entitlements.

If the parties continue negotiations, the project would return for further public review and Council consideration, including CEQA compliance and applicable land use approvals. The current planning estimate is that the project may take approximately 18 to 24 months to reach final Council consideration; the actual schedule will depend on environmental review, processing, and public review.

The proposed term sheet advances the City Council’s prior direction to evaluate closure and redevelopment of the Banning Municipal Airport and provides a structured basis for continued negotiations with Hillwood and processing of the proposed project. The framework retains City ownership of the land, provides for phased leasehold interests, reserves a City Parcel, and places the principal pre-development and construction costs, including closure costs as identified in the FAA Reauthorization Act of 2024 on Hillwood, subject to final agreements.

Approval of the proposed term sheet would advance negotiations toward redevelopment of the Banning Municipal Airport and the potential financial benefits outlined in the proposed terms (see fiscal impact below). Over time, these benefits could support the City’s efforts to address its fiscal challenges and achieve long-term fiscal sustainability. 

The term sheet also preserves the City’s discretion to evaluate the project through CEQA and other public processes, consider alternatives, require appropriate mitigation, revise or reject the proposal, and retain authority over land use and regulatory decisions. Approval would establish a non-binding negotiating framework for further review. It would not authorize airport closure, entitlements, construction, or execution of Definitive Agreements.

The proposed Pre-Development Term Sheet establishes the economic framework for a 55-year ground lease of approximately 175.7 net acres of City-owned land at the Banning Municipal Airport for phased industrial development, which includes approximately 3.2 milllion square feet of industrial building space. The City retains fee ownership. Hillwood acquires leasehold interests only, in phases, and bears all pre-development, entitlement, and construction costs.

The as-is appraisal of the airport land is approximately $33.6 million. The term sheet converts that land into a long-term revenue stream. On the terms discussed and agreed to with the Airport Ad Hoc Committee (Royce and Barrington) and reflected in the term sheet, the City’s recurring sources (i.e. ground rent, the services community facilities district, annual option payments, and the City’s share of property tax) are projected at approximately $332 million nominal over the term, before any sale of the land and before one-time fees. Present value of the recurring stream, discounted at 4 percent, is approximately $90 million before sale or one-time fees. Development impact fees of approximately $15 million (about $11 million present value) bring the package above $100 million present value without counting a sale.

Key Economic Terms of the Pre-Development Agreement

The following five significant terms are the economic core of the term sheet presented for Council direction. They are the product of negotiation from Hillwood’s initial proposal.

1. Ground Lease and Rent

• •    Each ground lease is 55 years from the Rent Commencement Date for that phase.
  •    Rent commences on the earlier of (a) five years after the effective date of the ground lease or (b) issuance of a certificate of occupancy for the applicable building.
  •    Base rent is $0.344 per square foot of net usable land area per year. For the first five years following the Rent Commencement Date of each building, base rent is reduced to $0.30 per land square foot per year.
  •    Beginning in year six, base rent increases by not more than 10 percent every five years. The first adjustment is calculated on the $0.344 base, not on the reduced $0.30 rate.
  •    Conceptual program is six buildings on 175.70 net acres (Attachment C of the term sheet).

2. Option Consideration

• •    $250,000 payable upon certificate of occupancy for Building 1, as consideration for the next phase.
  •    Thereafter, an annual payment of $250,000 to the City while unused phases remain under option.
  •    No credit of option payments against ground rent.

3. Public Benefit Fee and Airport Closure

• •    Public benefit fee of $6 million, payable upon commencement of the ground lease for the Initial Takedown.
  •    Offset by costs incurred to close the airport, including FAA closure repayments and City consultant and relocation-planning costs.
  •    If the City offsets any such costs with other resources, the savings are retained by the City. There is no rent credit.

4. Purchase Option at Lease Expiration

• •    Upon expiration or earlier termination of a ground lease, Hillwood has an option to purchase the Premises at the higher of (a) $33.625 million, or (b) the then fair market value of the land as vacant and zoned industrial.
  •    Fair market value excludes the value of improvements, infrastructure, utilities, entitlements, permits, and any value attributable to the lease or Hillwood’s occupancy. Buildings are excluded from the price.
  •    The $33.625 million floor is the as-is appraisal amount. It is not escalated. If an industrial appraisal at the end of the term is higher, the City is paid the appraisal.

5. Fees, Services Community Facilities District (CFD), and Other Contributions

• •    Development impact fees are paid at certificate of occupancy for each building. No freeze of the 2026 schedule is provided.
  •    Services CFD: special tax not to exceed $0.10 per building square foot per year, escalating 2 percent annually, subject to a verification study. Staff has recommended a CPI collar with a 1 percent floor and 5 percent ceiling.
  •    Hillwood constructs Lincoln Street along the frontage of the City Parcel. TUMF credits, if any, are processed with WRCOG and paid to the City as an interchange financing fee.
  •    City Parcel: not less than 20 acres retained by the City for a use and user the City desires, subject to a prohibition on competitive industrial uses.
  •    Community contributions: $100,000 for a City Parcel market study (including potential vertiport) at Building 1 certificate of occupancy; $250,000 for downtown beautification and/or economic development at Building 2 certificate of occupancy.

Project Revenue at Buildout and Over the Term

Buildout under the conceptual program is 2035, when Buildings 5 and 6 open. That year is not a full City-schedule year; Buildings 5 and 6 are still in the five-year $0.30 window. The first year every building is on the City schedule is 2040. The table below uses the illustrative model that supported the Ad Hoc negotiations. CFD is shown at a 2 percent illustration inside the recommended 1-to-5 percent collar. Property tax is the City’s 12 percent share of the 1.30 percent bill on buildings and possessory interest in the land.

Present Value and Public Benefit of the Lease Structure

The public benefit of the lease is converting an underperforming airport. As it stands, the airport is appraised at about $34 million. The negotiated terms turn that land into a recurring revenue stream of about $90 million in present value before any sale or one-time fees:

The sale is additional. If it closes at the $33.6 million appraisal floor, it adds that amount in nominal dollars (approximately $4 million present value at a 4 percent discount to the end of the term). If an industrial appraisal at that time clears the floor, the City is paid the appraisal. Permit and plan-check fees are also additional and are not sized in the table above.

Including impact fees and excluding the sale, the present value of the package is approximately $101 million. Relative to a sale of the airport today at the appraised value, the lease structure produces a present-value stream roughly three times the as-is land value before any purchase option is exercised.

Airport Fund

It should be noted that in comparison to the revenues modeled for the proposed project, the Airport Fund has experienced a consistent decline for many years because its operations have an ongoing structural deficit, with expenditures exceeding revenues. The adopted FY 2026-27 budget projects an end-of-year fund balance of approximately negative $561,023. The proposed redevelopment may provide a path toward addressing this long-term fiscal pressure.

There is no immediate fiscal impact to approve the proposed Pre-Development Term Sheet.