Comfortable Living

anny Sanchez remembers the concerns his parents had when he was debating whether to enlist in the military. They offered dire warnings about dilapidated housing on military bases. Like many young men, Sanchez did not heed their advice. He joined the Marines anyway. And, in this case, Sanchez, now a sergeant, proved his parents wrong. In July, the Marine recruiter, his wife and two young daughters moved into a new three-bedroom town house on the Joint Reserve Base at New Orleans Naval Air Station in Belle Chasse, La.

"It even came with a microwave," he says.

The home that Sanchez and his family now occupy is the result of a public-private partnership launched by the Navy and the Marine Corps to improve housing at their facilities. While all of the military services have launched efforts to privatize base housing in recent years, this year's Business Solutions in the Public Interest Award judges recognized that the Navy and Marine Corps have taken the boldest steps-forming partnerships with commercial developers not only to build new housing, but potentially to reap income from it.

As complaints about burst pipes and leaky roofs grew more and more common in the mid-1990s, Defense Department officials decided to turn over most base housing construction and maintenance operations to private developers and property management companies through long-term contracts. It would have taken 20 years and cost $16 billion to upgrade housing under the traditional military approach. With privatization, however, Defense expects all 280,000 housing units on bases to be upgraded by 2007.

"Privatizing military housing is a presidential and secretary of Defense management priority and is recognized as a key item on the administration's agenda to improve the quality of life for our service members," Raymond Dubois, deputy undersecretary of Defense for installations and environment, told a House subcommittee earlier this year. The department is seeking $4.2 billion in fiscal 2003 to continue upgrading military housing.

Congress has given the military services wide authority to pursue public-private ventures for improving housing, including:

• Allowing service members to use housing allowances to lease on-base housing from contractors.
• Allowing Defense to make 'differential' lease payments to developers if housing allowances fall short.
• Permitting direct loans to developers for acquiring or building housing.
• Guaranteeing rent payments to developers even during downsizing or major deployments.
• Permitting the services to form limited partnerships with contractors and to invest in nongovernment entities.
• Allowing Defense to sell, convey or lease property to contractors.

Although each of the services has entered into public-private ventures, only the Navy and Marine Corps have formed limited liability partnerships. Under this approach, they not only agree to provide funds from housing allowances, but they invest money up front and assume some risk if the project fails. The ventures are used for developing housing on bases as well as on private land.

For example, the Navy joined with developer Kirtley-Cole of Washington state and several financial firms and property management companies to form Gateway Everett, a partnership that will build 288 new town houses on private land close to several installations in Everett, Wash. Under the 30-year agreement, the Navy will invest $18.9 million and guarantee occupancy by Navy families or allow the units to be leased on the commercial market. The developer will put $42.3 million toward the project, set rents to match housing allowances and oversee construction, repair and management of the town houses. After 30 years, the Navy and its partners will sell the housing units and share the proceeds. The Navy could see a considerable return on its investment, depending on the future housing market in the region. Land near naval facilities tends to be valuable, since naval installations are often located in attractive coastal areas.

The Marine Corps, meanwhile, has traded land for housing. Last year, the service swapped 130 acres of land at its logistics base in Albany, Ga., with a developer, who will use the land for commercial purposes and in return build at least 100 new town house units at Camp Lejune, N.C. The Marine Corps and the developer have formed a partnership that will allow them to split any profits from the commercial development.

Navy and Marine Corps officials say they are already generating income off deals to build housing on bases and commercial properties in Everett; Corpus Christi, Texas; Camp Pendleton, Calif.; San Diego; New Orleans; and South Texas. The deals call for building a total of 2,226 new homes, replacing 1,778 rundown houses and renovating 1,481 others. The Navy and Marine Corps have put up a total of $133 million for the projects, but will save $478 million in construction and repair costs. Plus, the developers are liable for annual and long-term maintenance, and must provide housing with modern amenities such as swimming pools, garages, athletic fields and Internet connectivity.

Scott Forrest, director of special ventures acquisition for the Naval Facilities Engineering Command in Washington, D.C., which oversees the privatization deals, says the way the Navy and Marine Corps compete the work and negotiate the pacts is innovative. Instead of seeking highly detailed bids up front, the services issue requests for qualifications from potential developers that focus on how a deal would be structured and managed. Based on the proposals it receives, the Navy then selects as many as four development teams for a final competition. The teams must submit detailed proposals for financing the project, designing new housing, renovating and rebuilding existing units, and managing the property over the long haul.

Even after a final developer is selected, the services reserve the right to break off talks at any time and negotiate with one of the other final bidders. The strategy saves the Navy and Marine Corps time and money by focusing on a handful of detailed proposals. It also ensures they have more than one qualified bidder at the ready in case negotiations hit an impasse.

The General Accounting Office recently found that Defense's overall housing privatization program had achieved its two key financial goals-leveraging government dollars for commercial loans and lowering life-cycle costs of operating and maintaining housing. "Although implementation of the privatization program started slowly, DoD has picked up the pace and plans to use the program as the primary means to meet a revised goal of eliminating inadequate military housing by 2007, instead of the original goal of 2010," GAO concluded in its report (02-624).

Nonetheless, GAO made several suggestions for improving the management of the program including developing a single consistent way to:

• Analyze whether housing is needed on bases or whether there is enough affordable housing in surrounding communities.
• Determine whether proposed increases in military housing allowances will allow more military families to live off base.
• Write provisions into contracts that minimize developer profits from increases in housing allowances.

In the meantime, better housing is already improving the quality of life for sailors and Marines. Naval Reservist Terry Allegood, petty officer 3rd class, says when he was mobilized for active duty last February and assigned to New Orleans, he left his pregnant wife and two sons behind in Birmingham, Ala., because the local housing market was too expensive. Over the summer, however, they were able to relocate to Louisiana after affordable housing opened up in the form of a new privatized town house.

"I'm more at ease knowing that my family is being take care of and in a community that I can trust," Allegood says.