Mark Twain said “Buy land, they’re not making anymore” - Air rights like land are not being made anymore, but are being made liquid.
Mining coal demonstrates a way to increase real estate valuations and open the skies.
Wheelage refers to the cost or payment made by a coal company to the landowner for the right to transport coal across their land. This payment is typically based on the distance travelled over the land and is often referred to as "wheelage fee” or “wheelage royalty”.
Coal, lumps of carbon with a fluctuating market value needs to be moved from where it’s mined and sent to where it’s needed. Moving it has a cost that’s borne by the coal operation and the wheelage fee charge is distributed. All the costs including the wheelage fee are added together, and at a basic level, the wholesale price of coal is developed.
Wheelage is an important aspect of coal operations. It involves negotiating with landowners to gain access to their property for the transportation of coal, which can be a difficult and skilful endeavour. Knowing the most cost-efficient route or paying extra wheelage for shorter distances is vital in a competitive market. Dealing with the holders of the land needed to cross can be a time-consuming task eating into potential profits.
The coal company must ensure that the landowner is correctly compensated for the use of their land, which can include roads, railways, and other infrastructure needed for transportation or there are legal ramifications.
Marketplace aggregators develop these parcels in many cases to create a more fluid market so the coal operation can get on with their business, the landowners can get more consistent fees and the marketplace takes their rate.
In this process what has been found is that the land owners who permit the coal transit and gain a wheelage fee have their real estate’s capital value increased. The landowner can lease their land if they wish and with the income stream attached gain an immediate payment while the new lease owner gets a passive income stream.
Here is an example from a coal mining lease:
WHEELAGE ROYALTY
If Lessee should bring coal, coal products, or coal by-products through the Premises for sale to third parties, which coal has been mined, obtained or purchased elsewhere than from the Premises, Lessee shall pay a Wheelage royalty for each ton of ….. coal which is:
1. Transported into, through or under the subsurface of the Premises by way of underground entries, tunnels, passages and/or haulage ways in mines.
2. Stored or stockpiled in the subsurface of the Premises or loaded for sale to third parties from the Premises.
Coal And Air Rights
Air rights are an extension of land rights that have an intrinsic value and when there is added utility that intrinsic value goes up. They are severable, tradeable and the current market is opaque. There are many ways to add value to air rights. One way is to enable bids to be made on them so they can trade, short or long-term. The very nature of the air rights being tradeable adds value to them and the underlying capital valuation of the real estate goes up.
The airspace can be built into which adds value, ten more stories on a skyscraper in Manhattan is valuable. The air rights can be purchased and transferred to a different lot, increasing value in another location and releasing funds to the original owner.
Drone transit through air space also adds to the value of the air rights parcel and the underlying real estate, and a transit fee compounds this.
But the drones have a problem, it’s a lack of permission to be in low-altitude airspace.
The general rule is that "any unauthorized entry upon the land of another is a trespass, and every trespass results in some damage.”
Rental value is the general basis for calculating the measure of temporary damages in trespass, regardless of the actual rental status of the property. Property owners are entitled to compensation when the government or a trespasser substantially impairs the use of their property. Compare this to how airlines operate and patterns emerge.
Commercial airlines fly their passengers around the world, which means that they must have permission to fly over countries. Airlines pay the countries they fly over. The fees are typically charged to airlines by the countries whose airspace they pass through. Fees are usually paid as a fixed charge per flight or a percentage of the revenue generated by the flight.
Some countries charge additional fees for services such as air traffic control, navigation aids, and other infrastructure used during the flight. The fees are intended to compensate the country for the use of its airspace.
The fees charged per flight range from $800 to $8,000 depending on the location and the altitude.
At an estimated 40M commercial flights per year that’s up to $320B of fees paid for the permission to be in high altitude airspace.
Dollars And Facts
The matter is well settled, airlines pay for using the airspace of the owner, and coal companies pay the owners of land for using it to transport coal, these principles are not controversial. To utilize low-altitude air rights there is also a fee and high economic value to those who trade and own air rights parcels.
Access to this market is required. Air rights can trade for anywhere between $5 and $400 per cubic foot, which equates, in some cases to hundreds of millions of dollars in an area of high demand or usage. Untapped cities’ air rights are valued in the hundreds of billions.
When we look at low-altitude airspace, which is owned by a decentralized network of real estate owners through their air rights, a pattern starts to emerge, showing a problem.
The solution to the problem of underutilization is an air rights marketplace.