Operation Enduring Red Tape

A new round of base closings may mean big opportunities--and big headaches--for affordable housing developers

by Bennett Voyles

The Department of Defense (DOD) is now eyeing a new round of military base closings that could open a vast opportunity for affordable housing developers.

No estimates are available yet regarding how much surplus real estate could be ceded to local authorities. However, the DOD recently estimated that 20% to 25% of its infrastructure is no longer needed. Since DOD holdings amount to 18 million acres and more than 40,000 properties, even a relatively small number of closures and partial closures--“realignments” in Pentagon parlance--could be a big gain for affordable housing developers.

On Dec. 12, 2001, House and Senate leaders agreed on legislation to authorize a new round of base closings to move a disputed $343.3 billion military spending plan forward. Negotiators agreed that the closings would not occur until 2005 even though the Bush administration and the Senate wanted the process to start two years earlier, news reports said.

The base-closing issue had forced a standoff on the defense bill. The Republican-led House was opposed to more closings, but conferees reached a compromise with the 2005 date. The full House and Senate had yet to vote on the final version of the bill at press time.

“I do think that the next round of closings will happen eventually, and I think there will be lots of opportunity in that for affordable housing and other base reuse activities,” said Trent Norris, a partner at McCutchen, Doyle, Brown & Enersen, a California law firm that specializes in base reuse issues.

Under the agreement, the president would appoint nine people to a base-closing commission. Working from a list submitted by the DOD, the commission will decide which facilities should be closed and submit a list to the president, which he can accept or reject on an “all-or-none” basis. If he accepts, he will send them on to Congress, which will have an opportunity to give a thumbs up or thumbs down to the whole package – not individual closures.

Veterans of past base conversions caution that the scale of the opportunity is likely to be matched only by the difficulties involved. “There’s nothing simple about military base reuse,” said Michael A. Houlemard Jr., executive officer of the Fort Ord Redevelopment Authority, a 45-square-mile former Army base located near Monterey, Calif.

The logistical difficulties of bringing old buildings to code and cleaning up base environmental problems are vast. At Fort Ord, the military is still disposing 12 different kinds of waste. Hazardous materials teams are disposing everything from lead-based paint and asbestos to rockets, grenades and mortars, according to Houlemard.

But reuse officials said that the biggest challenges to affordable housing conversion are actually bureaucratic and political. At Fort Ord, Houlemard said, 53 local, state and federal agencies govern the Fort Ord Reuse Authority. Officials said that in addition to inter-agency wrangling, local homeowners often oppose base conversion to affordable housing. Since the closure of a base is usually an economic blow to surrounding communities, area residents often fear that adding affordable housing to the market will just aggravate an already depressed market.

To make matters worse for affordable housing advocates, time has not usually been on the reuse team’s side. Not infrequently, by the time the communities agreed on the proposed reuse and the government had cleaned up the facility and agreed to turn it over, the housing stock itself had deteriorated beyond repair. Experts said that thousands of units of housing have been lost as a result. At Fort Ord alone, Houlemard estimated that delays in restoring buildings probably cost the facility a thousand units of housing.

“[The base reuse process] in general is workable and is a good, public process; it just takes so long to happen that it doesn’t result in affordable housing being readily available for affordable housing programs,” quipped John Lynch of the Spectrum Group, an Alexandria, Va., consulting firm with a specialty in base closure issues.

Two bases where experts said the reuse process has gone exceptionally well, Fort Ord, and the former Lowry Air Force Base, a 1,900-acre property outside of Denver, are still in the first stages of their housing development plans, although both bases were closed more than seven years ago.

At Fort Ord, Houlemard estimates that 6,000 new units of housing will eventually be built on the property, and 4,500 rehabilitated from existing stock. Right now, two rental apartment complexes are open, both conversions of officers’ housing built in the 1960s and ’70s, being refurbished by Mid-Peninsula Housing, a nonprofit housing company. One complex, Preston Park, opened three years ago. It has 352 units of two-, three- and four-bedroom apartments available for rent. The other complex, Abrams Park-Bravo, has 192 units, and just began opening recently (parts are still being renovated). Renovating Preston Park cost only $11,000 per unit, Houlemard said; Park-Bravo is running closer to $35,000, a difference he ascribed partly to the five years the Park-Bravo units stood vacant, compared to Preston Park’s one vacant year.

Each Fort Ord development reserves 20% of units for below-market rentals, which authority executives define as 80% to 120% of the $52,600 area median income (AMI).
Since the apartments are still under lease from the Department of Defense, financing the conversion took some ingenuity. Houlemard said the authority struck a deal with a local bank that used the future cash flows of the rentals as collateral, rather than the property itself. A $4.2 million loan for the Preston Park refurbishment was paid off from rental cash flows in two and a half years. A similar $5.5 million loan is now being paid down for the Abrams-Bravo project.

Lowry Redevelopment Authority’s master plan calls for a similar 20% set-aside for below-market workforce housing out of 4,000 units to be built over the next four to five years, approximately 400 units out of 2,000 for sale, and 400 units out of 2,000 for rent. But unlike Ord, Lowry’s development is all new stock. Tom Markham, Lowry’s executive director and the vice president of the National Association of Installation Developers, a Washington, D.C.-based advocacy group for developers of former military facilities, said the existing housing was too dilapidated to make renovation cost-effective.

Markham said he expects Lowry’s first 75 units to be built by a private contractor within the next six months. The units will cost approximately $125,000 each, he said. Of that, Lowry will contribute $15,000 in the form of land, the City of Denver will contribute $5,000 in the form of lower fees for design reviews and sewage and utility hookups, another $10,000 will come from a private corporate donor Markham said he is in the process of recruiting, and the remainder will be funded through a mortgage held by the unit owner.

To ensure that these below-market rate units once purchased are not immediately resold at market rates by speculators, the underlying land will be owned by a land trust set up by the Lowry authority. The trust will own the land and share in the equity of each home, making the value of the homeowner’ equity at once more affordable and less attractive as a speculation.

If a new round of closures is approved, closure experts say facility transfers will probably follow what was once officially and is still popularly known as the BRAC process, for Base Realignment and Closure. Under BRAC, the military first announces that it intends to close a facility. Closure officials look internally to see if it can be put to use by another branch of the service. Then, they solicit other government agencies for proposals. At this point, local entities may find a federal department to sponsor a new use. For instance, a school district might ask the Department of Education to sponsor conversion of a facility as a school.

Assuming land is still up for grabs, the DOD asks a local reuse development authority set up for the purpose by the adjacent communities to draft a plan for economic redevelopment. After the DOD accepts the plan of intended use, then the redevelopment authority must jump through multiple regulatory hoops – the environmental signoff seems to be particularly onerous – before the land and facilities are finally transferred, a process that typically takes three to four years.

However, base reuse experts say, this new round of closures should run more smoothly than previous rounds. For one thing, the military knows much more about the process, having gone through it a number of times. In addition, they have developed several procedural innovations such as leasing facilities before final conveyance that can fast-track conversion.

Finally, veteran base reuse planners say that one clear advantage tomorrow’s base reuse officials will have is the benefit of their own hard-won experience. Here are their five top takeaways:

1. Talk to an expert. Norris suggested consulting the National Association of Installation Developers, www.naid.org, which has a wealth of knowledge about how the base reuse process has worked in the past and is in a position to make well-educated guesses about how it is likely to work in the future. The International City/County Management Association is another organization expertise on the subject, he said. Norris added that the DOD’s Office of Economic Adjustment, the agency responsible for monitoring the facility conversion process, is another important source of closure information.
2. Forge a community consensus on redevelopment plan early. Tim Ford, deputy executive director of NAID, said some communities that overlooked the need for consensus sometimes pay for it in litigation later – a result that in some cases prevented productive reuse for years.
3. Learn everything you can about the base while it is still open. Taking an inventory of base facilities while they are still in operation is very important, as this can become difficult after the base closes, Houlemard said.
4. Make utilities deals ASAP. It can be tough attracting partners if your answer to the question, “Who serves the utilities?” is “We think it’s going to be these people,” said Jim Tidd, deputy director of the Grissom Redevelopment Authority, which is charged with the redevelopment of the former Grissom Air Force Base.
5. Try to lease parts of the base directly from the Department of Defense before the entire plan is signed off. While a complete transfer can take three or four years, leasing ahead of conveyance is possible. “Come in there and get moving as quickly as possible,” Houlemard advised. Launching reuses early can provide cash flows that will make it easier to get financing later on, and even help smooth the approval process.

Base development experts agree that while the process is slow and difficult, it is not impossible. “If you have the patience and persistence – and the willingness to get a little impatient once in a while – you can make it work,” Houlemard said.

Ford said he believes chances are good that Congress will give the Department of Defense the authorization it needs to begin planning closures and realignments.

If that happens, the next step will be for the DOD to draw up a list of facilities to be closed. No one knows, or is saying, which bases are likely to be affected. “Stay tuned and see what happens,” advised Glenn Flood, a spokesman for the DOD’s Office of Economic Adjustment.

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