Local industry pros join national developers in enhanced-use lease projects.
As a result of the U.S. Department of Defense’s 2005 Base Realignment and Closure proposal, several military facilities across the country have been deemed either obsolete or in possession of surplus lands that hold valuable development potential for the surrounding communities. Commercial real estate professionals may be surprised to learn that these unused sites can be an untapped source of new business for local brokers. By partnering with major developers through the DOD’s Enhanced-Use Lease program, commercial real estate professionals can play a significant role in the marketing and leasing of these government assets while at the same time having a positive impact on the surrounding community.
EULs are one method for allowing commercial development on underutilized military-owned sites. A result of the National Defense Authorization Act, the EUL initiative enables the DOD to make underutilized, non-excess real property available for long-term lease. In return, the government obtains monetary or in-kind consideration, and a fee-simple title may be conveyed for some of the in-kind transactions.
Several factors have contributed to the creation of EULs. For example, the need for upgraded living facilities for military personnel is considered along with the need for complementary commercial real estate uses at the sites. Many of these military installations originally were built in remote locations away from the general public. However, due to population growth and urban sprawl, a number of the sites are no longer isolated. In many instances, public uses directly abut the installations. The natural maturation is to generate complementary or supportive uses directly affecting the military installation’s missions, which provide opportunities for private development via the EUL process.
Allowable EUL projects are broad and varied, covering almost the entire spectrum of commercial real estate property sectors. Uses can include office space, warehouse and distribution centers, laboratories and research facilities, lodging, mixed-use, multifamily, retail, and hospitals and medical facilities among others.
Once the appropriate military branch has determined an asset is surplus, the bidding process to become an EUL master developer is initiated through a public, transparent process. Bidders must submit detailed market studies of potential commercial uses on a particular installation as well as identify potential market voids. In addition, developers must provide detailed marketing plans in their bid packages. Due to this requirement for market data, the process provides a number of opportunities for local commercial real estate practitioners. Brokers have the potential to partner with national developers and supply detailed local market knowledge and services to help execute the EUL marketing plan.
Florida Case Study
The U.S. Air Force solicited EUL proposals for 98 acres of vacant land adjacent to the Eglin Air Force Base in Florida, one of the military’s largest active domestic air bases. Working with master developers Hunt Development and DCK Corp., Coldwell Banker Commercial-United Realtors helped to identify a viable product type for the land and develop a marketing plan that supported the goals of the EUL process. Other project goals included improving utilization of the property, stimulating the local job market, and fostering cooperation between the installation and the private sector by introducing federal property into the local economy.
The market area prevented a project of this scope due to its high barriers to entry, including a limited amount of available land mass, prohibitive land cost basis, and zoning restrictions. Combined with these conditions, other market factors influencing the project included functionally obsolete existing inventory, lack of inventory with space requirements to meet large single-tenant users’ needs, and geographic limitations due to bodies of water and the Air Force base itself, which stood in the path of the logical growth pattern.
As such, the 98-acre parcel was proposed as a class A, mixed-use campus environment that would attract synergistic tenants to complement the base’s mission as well as appeal to other related and new industries, including information technology and health services companies.
The master plan dictated several mixed uses, including office, restaurants, hotels, a wellness center, and daycare facilities. To determine the property’s best use and ideal tenant mix, Coldwell Banker Commercial-United Realtors completed an evaluation to consider potential absorption and achievable rental rates. The company was introduced to the developers, who provided an overview of both the EUL process and the project seeking market information to confirm their vision for the development.
Coldwell Banker Commercial-United Realtors proceeded to research market rates, historical market absorption, potential deliveries, and segmented competitive sets in all market segments, specifically focusing on office, hospitality, and industrial. In sharing the research with the developers, it became clear that mixed-use with a heavily weighted office component confirmed their earliest vision for the asset. From that point, the business model was developed and a detailed marketing plan was submitted to the developer with the information becoming part of the written — and later narrative — proposal to the military.
As a result, Eglin Properties, a joint venture between the two master developers, was awarded a $250 million contract and ground lease for the development and construction of the Emerald Coast Technology and Research Center at Eglin Air Force Base. Anchored by the University of Florida’s Research Education and Engineering facility, the proposed development includes approximately 1.2 million square feet of class A office, technology, and research space along with student housing, a conference center and hotel facility, a health wellness center, an extended-stay hotel, two midscale restaurants, two fast-food restaurants, a child development center, and an Okaloosa County, Fla., economic development incubator project.
An enhanced-use lease was used for Emerald Coast Technology and Research Center adjacent to Florida’s Eglin Air Force Base.
Photo Credit: Hunt Development/DCK Corp.
Both the military base and the surrounding community already have and will continue to benefit from the development. The EUL released the value of underlying land and provided for necessary development. In addition, the project will attract new industries to the area, give base contractors a central location for easy interaction and close proximity to base operations, supplement base maintenance costs, and provide overall stimulation of the local economy.