Base Closures: Redevelopment Boon Or Bust?

With the Department of Defense shutting down military bases across the nation, commercial real estate developers are investigating potential redevelopment sites. As many as 33 major bases will be closed while another 29 bases will be “realigned,” which in military shorthand means they will absorb more staff. Meanwhile, the shuttered bases should save the government a whopping $50 billion over the next 20 years.

The government cost-cutting benefits are clear, but are base redevelopments worth the headache for developers? To be sure, decommissioned military bases offer unique risks and rewards for any developers bent on reinventing them.

In Groton, Conn., for example, the Navy’s oldest submarine base is tainted by sulfuric acid, torpedo fuel and waste oil. That base—-the Submarine Base New London-—is expected to close this year, and the Navy has pledged $23.9 million toward cleaning up the mess. Even if the land is ultimately fit to build residential housing on, however, the potentially valuable real estate on the waterfront is by far the most polluted.

"If you have the willingness to deal with the environmental mess usually left behind by the military, and the gumption to convince local authorities that you mean well, opportunities definitely exist for redevelopment strategies," writes Boston-based Property & Portfolio Research in a recent report.

Then there’s the economics of these projects. With many towns and cities reliant upon their military bases as economic hubs, shuttering them can have ripple effects throughout these communities. Sheldon Gross, principal of West Orange, N.J.-based Sheldon Gross Realty, cautions that many of these locations are suspect for that very reason.

“If the base closes, people will move away,” Gross cautions. “Why would people live there if there were no jobs?” His office is located in Monmouth County, where army base Fort Monmouth is expected to close. The base, which employs 5,200 workers, is one of Monmouth County’s largest employers.

Conversely, bases targeted for closure that reside in the shadow of larger cities are good candidates for redevelopment. “The bases that are located near major metro areas will clearly fare better than the remote bases," says attorney Richard Gold, a partner at Washington, D.C.-based law firm Holland & Knight. Gold, who leads the firm’s public policy and regulation practice, says that many smaller cities rely heavily on their military bases for jobs, which makes the area less attractive to developers seeking to build office, residential and retail there.

Indeed, the closing of the Naval Support Activity base in New Orleans would result in the loss of more than 1,300 jobs. Northern New Jersey, however, stands to shed as many as 6,600 military jobs across the region--the highest projected losses for any region, according to the Department of Defense. An analysis by Property & Portfolio Research shows that several of the re-aligned bases will see added military personnel, which should have a positive trickle-down effect on office and warehouse properties.

The Washington, D.C., and northern Virginia corridor, in particular, should benefit from these realignments. PPR projects that this area will add 15,300 new military jobs over the next few years. Even Norfolk, the largest naval base on the East Coast, will add roughly 7,500 new jobs over that period. Indianapolis will clearly benefit from the realigned bases, generating some 3,500 new jobs, according to Property & Portfolio Research.

“The military will be adding 3,500 finance and accounting jobs in Indianapolis, which is probably the best news that Class B and C office owners there have heard in years,” according to Property & Portfolio Research. These additions could result in the absorption of nearly 1 million sq. ft. of office space.”

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