Developers build portfolios through military housing privatization initiative.

Many of the country's top developers, some of which are combining efforts, are bidding for aim winning contracts to participate in the privatization of military housing. With the Department of Defense granting these lucrative awards on abut a monthly basis, military housing is becoming a more pronounced segment of these developers' portfolios.

With the September award of another Department of Defense (DoD) contract to Lincoln Properties to privatize military family housing in Quantico (Va.), and Camp Pendleton (Calif.), Lincoln has a single contract for two installations.

The new contract gives Lincoln a presence on the East and West coasts and an opportunity to develop 4,534 residences in partnerships with Bethesda, Md.-based Clark Construction Group and El Paso, Texas-based Hunt Building Corp. The overall value of these projects is more than $750 million and brings to four the total number of awards to Lincoln by the Army, Navy and Marine Corps. Lincoln expects to receive more bids in 2004.

With the announcement that same month to develop a community' development management plan (CDMP)--the first development step needed when subsequently being awarded a bid--for privatizing 7,654 residences of Army and Coast Guard housing at Fort Shafter/Schofield in Hawaii, as well as community centers and other community amenities in an initial 10-year development timetable, Actus Lend Lease LLC, a joint venture of Winn Companies, Boston, now holds the largest privatization contract for DoD, according to Actus' Executive Vice President and Chief of Business Development Tom Swain.

"As a result of the two most recent awards, [Winn] now has our first contract with the Air Force and we have DoD's biggest privatization contract, so we are excited about our success, as well as the success of the initiative," said William Wollinger, President and CEO of WinnResidential, the multifamily management arm of WinnCompanies. Military housing contracts in South Carolina. Kentucky and Texas, now represent 25 percent of the company's portfolio, said Wollinger, and he is looking forward to that increasing. "We continue to upgrade these locations and now we have a very significant opportunity to provide housing in Oahu that is very, much needed," he said.

The Fort Shafter/Schofield award is expected to be made official in late 2004. The entire scope of the Hawaii Residential Communities Initiative, of which the Actus award is part, is valued at about $1.8 billion, with about $5.1 billion in revenues during the 50 years of the prelect. According to Swain, Actus has already built more than 1,200 residences on Oahu and has projects underway in four locations in Hawaii. By the close of the year, Actus said it expected to be awarded a contract to improve Army housing at Fort Campbell (Ky.), according to a DoD source.

Ohio-based Forest City Enterprises Inc., was recently awarded a contract to own, redevelop and operate 1,900 residences at five U.S. Navy communities in Hawaii, through a partnership with Texas-based C.F. Jordan L.P. Known as Hawaii Military Communities LLC, the partnership teamed with 18 Hawaii companies to develop the bid it subsequently won.

"We believe strongly in public/private partnerships, and in using the expertise available within the communities where, we make long-term commitments," said Forest City's President and CEO, Charles Ratner.

With the July 2003 approval to create a CDMP for the Army's Fort Stewart in Hinesville, Ga., and the airfield in Savannah, Ga., GMH Military Housing, an affiliate of Newtown Square, Pa.-based GMH Associates, foresees partnerships with the military eclipsing its corporate core of student housing development, said GMH Military Housing Senior Vice President of Business Development Rick Taylor The award is expected to be made by December 2003.

GMH also won approval to develop the CDMP for Fort Hamilton, in Brooklyn, N.Y. Actus was contracted for an estimated 12,000 residences in three earlier awards.

These awards, among a host of others made in recent months, demonstrate the successes of a handful of developers who are building their portfolios via DoD's seven year old Military Housing Privatization Initiative, the latest effort by Congress and the four brandies of the armed forces to improve inadequate housing by turning redevelopment over to private industry. Many of these contracts have a 50-year life span, which promises developers long term stability. That stability is just one of the benefits afforded them.

Regardless of the recent awards, DoD still has not met its 2003 contract goal. It handed private developers only 23,000 of 60,000 residences, but it is optimistic it will reach its 2004 goal of 100,000, said a DoD source. In fact, awards are made monthly--an attempt to fulfill an objective of the initiative: the expeditious movement of development and management of military housing to the private sector.

In January 2004, Clark/Pinnacle Belvoir LLC and Clark/Pinnacle-California Military Communities LLC are expected to be awarded contracts for Fort Belvoir and Fort Irwin (Calif.).

For a company that grows 5 percent to 10 percent a year, Pinnacle, Seattle, Wash., now enjoys 8 percent growth from its military housing contracts, said Stan Harrelson, CEO, Pinnacle. Pinnacle, which manages a portfolio of apartment, office, industrial and retail assets valued at more than $4.3 billion, operates Gateway Development for smaller military privatization contracts, totaling two to date. And for larger contracts, Pinnacle partners with Clark Construction, and recently was awarded two more contracts.

"Privatization has the potential for being extremely profitable because there's fee generation and stability," said Harrelson. "The 8 percent growth to our overall portfolio is considerable because it's a unique business and the term is defined by a period of years. All our awards, except one, are 50-year deals. Hopefully my kicks like the business."

In March 2004, Actus Lend Lease will move forward on developing a six-month master plan for the Army's Fort Shafter/Schofield. By the end of 2003, GMH is expected to be awarded a contract for housing at Fort Stewart (Ga.) and awards will be made to privatize housing at Fort Campbell and Hickham Air Force Base in Hawaii, which is expected to be awarded in December to Actus.

While many companies have bid successfully on several contracts, the DoD wants to enlarge its pool of awardees, the DoD source said.

"At $1.5 billion or $2 billion, it's a significant part of our business," said Reg DelPonte, Senior Vice President and Western Regional Operating Partner for Lincoln, which entered the military privatization business less than four years ago. "Since it is similar to our multifamily core business, it was easy for us to branch out because our infrastructure was there in terms of development and property and asset management, which is something we've done for 35 years in the private sector. It's not eclipsing our multifamily business, but it's a good additional revenue source."

For the Virginia award, DelPonte said, both Lincoln and Clark are the developers; for the California award, Lincoln/Hunt will be the developer, with Hunt doing the construction. For both projects, Lincoln will provide property and asset management. According to DelPonte, Hunt has a strong, decade-long presence at Camp Pendleton so partnership with them made sense; Clark's reputation and location made it a logical East Coast partner.

In June, Lincoln and Clark jointly partnered with the Department of the Navy to build, renovate and manage 3,300 residences in San Diego, raising more than $380 million for this 50-year venture. This is in addition to another Lincoln/Clark partnership with the Navy to build 500 residences. The partnership already manages another 2,660 residences, said Clark Realty Capital development manager Joe Schafstall. There also are projects that are not expected to be completed until 2007.

While Actus' sole concentration is military housing, and its involvement preceded the relatively new privatization initiative approved by Congress in 1996, Swain said the new initiative inherently guarantees long-term work during a 50-year contract.

"Anything we renovate now, we tear down later," he said. "And anything new will have to be renovated in later years so it's a consistent source of income. Most developers don't have 50-year contracts."

For Picerne Real Estate Group, military housing now comprises more than one quarter of its portfolio and--its growing, said Chris Bicho. And that does not include the most recent project, housing at the Army's Fort Polk (La.). Recently, Picerne Military Group entered into an agreement to develop a master plan for the Fort Polk housing and Picerne is expected to take responsibility for the project in spring 2004, he noted.

Picerne is already in contract for housing at Fort George C. Meade (Md.) and Fort Bragg (N.C.). With these three awards, Picerne is expected to provide 12,000 housing residences that will create future opportunities to redevelop the sites over the course of the contracts.

"We are still focusing on our core business, but military housing is a good growth area for us," DelPonte said.

The Winning Bidders

These developers have won contracts through the DoD Military Housing Privatization Initiative, as of October 2003. To secure many of the contracts, developers have partnered with each other.

* Actus Lend Lease

*Aurora Military Housing/Hunt Building Corp.

* Clark/Pinnacle Family Communities

* Landmark Organization

* Dujardin

* EQR/Lincoln Properties

* Gateway

* Hunt Building Corp.

* Hunt/Fluor Lincoln Clark Family, Communities

* J.A. Jones

* Lincoln Property Co./Clark Realty Capital

* Louisiana Navy' Family Housing/Patrician Asset Management

* Patrick Family Housing (Shaw Group/Carbetta Enterprises)

* Picerne Military Communities

* Picerne Military Housing

* The Properties at Wright Field (Miller-Valentine, Woolpert, Hunt Building Corp.)

* South Texas Military Housing/Landmark Organization

* Tri-Military Command Military Housing (Actus Lend Lease)

FYI 

For more information on the privatization of military housing, see the January/February 2003 issue of UNITS' magazine.

B. Kreisler, Imprint LLC, is a consultant to the affordable housing industry, providing public relations and social marketing support. She can be reached via e-mail to [e-mail].