Military Base Reuse
As Closures and Realignments March On, So Do Real Estate Opportunities.
It's been said that old soldiers never die; they just fade away. Old military bases, on the other hand, need some help in their transformation to a new life. As the list of bases nationwide being closed or realigned has expanded-with more anticipated-commercial real estate opportunities from their redevelopment should increase as well.
These former base properties are unlike typical commercial real estate transactions in many ways, including the federal government's lengthy disposition process, the involvement of state or local redevelopment authorities, and a lack of standard building code and infrastructure presence. Shuttered and realigned bases offer similar opportunities; however, realigned bases still maintain some military function and may have fewer properties available.
The lengthy process is challenging, but offers opportunities for commercial real estate professionals near military installations. Rod Noles, CCIM, of Prudential Noles Frye in Alexandria, Louisiana, has parlayed his experience with a local base closure-what he calls "military exit"-into nationwide base redevelopment consulting work. He says that "Anybody who has a military base in their marketplace right now is in one of the four stages" of development or possible redevelopment: anticipation, announcement, closure, and reuse. Commercial real estate professionals should "identify which of the four stages they're currently in and have not only a survival plan, but an opportunity plan," he says.
Commercial Real Estate Opportunities
Many opportunities exist for commercial investment practitioners, as communities strive to replace jobs they've lost from military downsizing, Noles says. The leaders in base reuse-related fee income are engineering, land planning, and accounting firms, he adds, which leaves opportunities for real estate professionals.
"This is a fairly new industry and you need to be creative in the services you can provide...and charge based on what you think the return on investment is going to be for them," he says.
L. Fred Glover, CCIM, director of economic development for the Myrtle Beach Air Base Redevelopment Authority in South Carolina, stresses the need for commercial real estate expertise. "We, the redevelopment authority, are not staffed or financed to be the development entity," he explains. "We're going to guide and direct the development. There's tremendous opportunity." Commercial property experts are especially important to the process, he says. Valuation of many base buildings can be done through "really only one method, an income approach to value," Glover says, with which a commercial broker "can step into these situations and be a real player."
The first step for commercial real estate professionals is to learn a reuse site's key players early on, says Ann Blackburn, a senior manager at E&Y Kenneth Leventhal in San Francisco. "I can't emphasize enough that they cannot expect to be successful coming in at the 11th hour," she says.
Brokers and developers have choices on how to get involved with military base reuse projects. "It is a very good opportunity for volunteering that will lead to other opportunities," says Peter Allsopp, CCIM, interim base reuse coordinator at Fort Devens in Massachusetts in 1993 and 1994. But Noles maintains that commercial real estate professionals should strive to be on "paid teams" and not voluntary boards: "Avoid the temptation to be on the board and the authorities where you'll have a conflict of not being able to do the business."
Onsite, "Almost every base that is closed has to go through a planning process to find out what the highest and best use is," Allsopp says. Experienced brokers "can offer a lot of knowledge about real-world issues." Brokers can earn fees from work on economic impact studies, which will vary by project, but can bring in $10,000 to $50,000, Noles says.
After such surveys, but before property is transferred from the government, subleasing opportunities exist. "Some very valuable lease terms can be generated, particularly for industrial tenants," Blackburn says. Brian N. Hamel, president of the Loring Development Authority in Limestone, Maine, goes a step further. "If a company can come in and show us that [it] can create jobs...we can give [it] free rent to come in and do that," he says.
Other fee-based work includes gathering data for development authorities, earning a percentage of gross rents from managing residential properties, or earning contingency fees from bringing deals to the table, Noles says. Further, brokers can earn property management and contingency fees on sales or leases. "Management fees should be slightly higher than a traditional fee, because you have a lot of regulations to comply with," he notes. Brokers also can seek development opportunities themselves, he says.
Related sales opportunities also exist off the base. Noles stresses not to ignore buys in the immediate vicinity of the base as he did in Louisiana when the England Air Force Base closed. "I was playing too much defense. I didn't take the time to play offense," he explains. "We should have bought every [foreclosed residence], in retrospect. They're all turned around, they're rented up. Nobody built any new ones. We ended up making nickels when we should have made hundreds."
From Prisons to Movie Sets
Reuses are easier to envision for some former military properties than others, as the myriad purposes of various bases left behind some interesting structures. Consequently, many bases have some challenges for reuse professionals to tackle.
Some properties can be marketed for reuse by focusing on what was done there before. Many military bases were, in effect, self-contained towns. In addition to their military properties, they often included golf courses, bowling alleys, and churches, all of which can be reused for similar public purposes.
Along the same lines, many former air force bases can remain aviation and cargo oriented, training centers can retain an educational mission, and some spaces obviously are suited to industrial or residential uses. For instance, last fall previous military housing at the former England Air Force Base became the first seniors housing project on a closed base, with 250 homes, Noles says.
Repositioning other spaces is harder, but there seems to be a new use for just about anything if it's marketed right-or if the right buyer or tenant comes along. Some cases in point:
- "I have a building out here, I said, 'What in the world am I going to do with that?'" says Myrtle Beach's Glover of a former flight simulator building that has two 5,000-square-foot bays each with raised floors, 30-foot-high ceilings, and extensive electrical and heating, ventilation, and cooling systems. Who would want such a property? "I just leased it to a television station," he says. Also available at the former Myrtle Beach Air Base: a jail. Believe it or not, Glover has had interest from someone who wants to locate a restaurant in an old jail. "You have to get real creative," he says.
- In California, "The entertainment industry has found these military bases very interesting," Blackburn says. For instance, the former Mare Island Naval Base in Vallejo now houses a tank for filming underwater movie scenes. Parts of the films Jack and Metro were filmed on Mare Island. Whether using the bases as sets themselves or building sets on them, the movie deals create numerous jobs while they're in town and generate an "enormous" amount of income, Blackburn says.
- At the former Castle Air Force Base in California, which closed in 1995, the Castle Airport Aviation and Development Center has approved new uses for more than 1.1 million square feet of the 2.6 million square feet of building area available; the biggest new employer expected at the base: a federal correctional facility, slated to have more than 350 new jobs.
- Maine's Loring Commerce Centre is hosting a three-day outdoor concert by the musical group Phish in August on its 1,600-acre airfield. More than 50,000 peopleare expected to take part in music, food, camping, and "plenty of surprise activities," according to the center's Web site.
A Brief History
Surprise, however, has not been a factor in overall military downsizing. "Bases have been closing since the end of World War II," says Pat Lopes, editor of the National Association of Installation Developers' NAID News. "But the real rush came between '88 and '95."
The 1970s and early 1980s did not see many base closures because, "We were having a defense buildup," explains Bill Laubernds, president of Economic Development Systems, Inc., in Brimley, Michigan, who worked to redevelop Michigan's Kincheloe Air Force Base after it closed in 1978 and now consults on reuse plans and workout acquisition strategies for former base properties. "We were preparing for an Eastern European assault by the Soviet Union."
Subsequently, the cold war ended-and government funding for bases diminished, he says. Congress formed a bipartisan commission to make closure and realignment recommendations to Congress through the Base Realignment and Closure (BRAC) process. Closures and realignments in 1988, 1991, 1993, and 1995 numbered in the hundreds, although their sizes varied greatly from large bases to single-building reserve centers. Currently, the Defense Department's Office of Economic Adjustment is working with about 75 major closures with significant job loss and 30 that it considers minor, providing financial and technical resources for reuse planning, says Patrick O'Brien, a business and industry specialist with the agency.
The closure-to-reuse process has seven basic steps:
- approval of BRAC's recommendations for base closures and realignments;
- federal screening for potential reuse of the sites (federal agencies and departments have first dibs);
- Defense Department recognition of the local redevelopment authority (LRA) established by state or local government and responsible for developing and implementing the reuse plan, with input from the community;
- LRA outreach showing what's available on the site;
- completion of the redevelopment plan and subsequent public hearing;
- Department of Housing and Urban Development review; and
- disposal of buildings and property.
Not surprisingly, redevelopment can take a while. "When you look at the overall process of getting access to the property when the military base closes down, it is still very cumbersome and slow," says Brad Arvin, NAID's current president, who recently completed a five-year stint heading redevelopment at the Chase Naval Air Station in Beeville, Texas.
The process also varies depending on which military branch is involved, Blackburn says. "Quite candidly, some of the arms of the military have been more aggressive in converting than others," she says, though she declines to name names.
Consequently, "All these bases have been closed and very little of this land is actually being used for civil use," Laubernds says. "It's a hell of an opportunity."
And attracting tenants can be tricky when a property transfer from government to reuse authority isn't imminent, and local interests don't always understand what's taking so long. "Sometimes, the communities are extremely impatient and they want all those jobs created yesterday," Hamel says. But, "If you start marketing too soon, you get someone who gets excited about the property, and you say, 'Can you please be patient two years while we get the property?'" says Hamel, whose authority recently signed its first long-term tenant, a portable gymnasium floor manufacturer, to a five-year lease.
Arvin agrees. "There are places where there's a willing new user and the military has no particular need for the particular property," he says. "But the paperwork trail that is required to be mastered before the new user can have access to the property is a daunting and time-consuming task. When you can't respond to what the market needs in a particular window of opportunity, you lose it."
The process has improved somewhat, Blackburn says, noting that one California base was closed 24 years ago "and is just now becoming redeveloped. That is a horrible example. Things are moving much quicker, and I think it's because of the critical mass that's occurred."
However, "There is still much to be done to make the process work better for everyone," Arvin maintains. Washington, D.C.-based NAID, which originated in 1976, has become more active in information sharing and agenda setting for its members, who are military base reuse professionals. The group is encouraging the federal government to implement new procedures to expedite the property transfer process if another round of closures occurs.
Urban Area Advantages
The fate of a former military base also depends on its location. "Many of them are very strategically located," Blackburn says. "Wall Street is very interested in these properties for investment and for growth, particularly in urban areas."
Glover, for one, boasts, "We are envied by many...of the other bases because of where we are. We're within the city limits of Myrtle Beach" and easily have replaced jobs through the tourism industry. The former base is slated to become a new "town center."
In Colorado, the 1,866-acre former Lowry Air Force Base site straddles the cities of Denver and Aurora, where the Lowry Redevelopment Authority is implementing four main reuses: residential, including 3,200 new homes with high-tech wiring and retirement housing; educational facilities; commercial development; and nearly 800 acres of open space, including trails and a golf course.
Bases in or near urban areas also may make large chunks of land available where they normally would be rare. Allsopp calls Fort Devens' approximately 8,000-acre site rural, but it's just 35 miles due west of Boston on a major east-west highway. "In that part of the world, a 100-acre tract is a lot of land," says Allsopp, who is now economic development director for Operation New Birmingham in Alabama. The former fort retained about 4,000 acres for the National Guard and wildlife. The main post's 3,500 acres are being redeveloped, as is the nearby airfield in order to relieve Boston's Logan Airport.
Remote Location Obstacles
In contrast, "You have some rural bases where it's going to be difficult to expand their economic base," Blackburn says.
Hamel, in northeastern Maine, would agree. "We're a little bit unique because of our remoteness," he says, having also worked on the redevelopment of New Hampshire's former Pease Air Force Base. "Our location in some people's minds is a problem. We're not going to be attractive to every company." However, in an unusual move, the government remains a financial partner in Loring until 2004 to help redevelop a site that's not only remote and cold, but also in a state with only a million people, Hamel says. In return for up to $3 million a year, the former base must meet performance criteria, including leasing 50,000 square feet of space annually and creating more than 1,300 new jobs by 2004.
Jan L. Dodson, president of Phoenix-based Athena Development Strategies, has been consulting with the realigned Fort Greely Army Post near Delta Junction, Alaska, about 100 miles southeast of Fairbanks. "It's not only remote, but remote in Alaska," she notes. "Its saving grace is that it's at the end of the famed and often-driven Alaska Highway and can refocus on tourism, as well as expanded agricultural uses such as meat production, processing, and distribution," she says.
Successful reuse of such remote former bases "depends on the energy that people put into the strategy and the marketing plan," Dodson says. "For instance, remote cold locations can be ideal for cold weather testing of cars and aircraft and endurance and cold weather training," she says.
Infrastructure and Building Code Variances
Another challenge is military base properties' setup, a sort of self-contained world not subject to many typical building regulations and standards. "The most challenging thing to immediate redevelopment has been the condition of the existing infrastructure," Dodson says.
Anyone interested in a former military base building needs an accurate assessment of what it has or lacks, Blackburn says. Because they were not required to, most buildings do not conform with regulations such as Americans with Disabilities Act standards or fire sprinkler requirements. Moreover, many utilities are not up to standard-most bases are on one utility meter, she says, while private users must meter buildings separately.
Gregory A. Diodati, CCIM, of Diodati Investment Company in Palm Desert, California, who is consulting on the reuse of the 330-acre airport/air cargo part of the realigned 6,000-acre March Air Force Base in Riverside County, California, suggests getting information from the former users. "The main thing is getting a handle on the infrastructure: What utilities are there, what soil conditions are like...while the military still is there," he says. "It's a huge timesaver to get all that upfront than to try and hunt it down and find it" later, he says.
Other issues to be worked out: Most military bases are not reflected well or at all in local zoning plans and in some cases there's been exclusive federal jurisdiction over them, Laubernds says.
On the plus side, many new users of former base buildings have access to equipment the military has left behind, which can range from industrial machinery to office equipment or vehicles, according to the E&Y Kenneth Leventhal Real Estate Group.
Finally, military base redevelopment includes an important issue familiar to commercial real estate professionals-environmental contamination.
Former bases harbor a variety of contaminants, depending on the use of the installation. The military is responsible for environmental cleanup. However, local communities often consider their efforts inadequate, according to a recent E&Y Kenneth Leventhal report. Common complaints include insufficient funds and long clean-up schedules. The report suggests that to best deal with contamination, reuse authorities, among other things, should query environmental experts, identify areas with the least amount of contamination for immediate reuse, and plan uses that require the least amount of cleanup. For instance, a vehicle maintenance area should be targeted for industrial use, not a park or playground, the report says.
Loring Commerce Centre is on a national priority list for its $150 million cleanup, Hamel says. Its main contaminants are petroleum-based products and landfills. Still, "The environmental issues here are not significant," he says. "We don't have any nuclear issues. The air force has done an excellent job...of identifying where the sites are."
But however bad the environmental problems actually are on a base, the perception hurts too, he says. "When people hear 'Superfund,' they're afraid," Hamel says. "The marketing problem is that you have to get [people] past it."
The strategies and lessons learned thus far in military base reuse projects are likely to continue to apply, as additional base closures and realignments are expected in the coming years, and as more property from existing closures transfers away from the government. And many entrenched in the redevelopment process now expect to be successful. Says Hamel, of Maine's Loring Development Authority: "If we do our job right, I'll work myself right out of a job."