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Saturday, February 04, 2012
Regional Focus: April 2009
Bases Loaded
Old military holdings offer new development opportunities
Story by Christine Stanley
In a metro area where the federal government accounted for nearly 30,000 civilian jobs, the Pentagon’s mid-90s closure of three local military bases left a bitter taste in the mouths of many. Sacramento battled the closure of Mather Air Force Base, McClellan Air Force Base and the Sacramento Army Depot and lost. Today, the federal government accounts for just 12,200 jobs. However, the reuse and redevelopment of these bases has led to jobs that are slowly replenishing the private sector.
Nearly 15 years after the base closures, Mather, McClellan and the depot are now business parks that total more than 450 businesses and employ upward of 16,000 people. But getting to this point hasn’t been easy. Developers faced hurdles posed by environmental cleanup and homeless housing requirements, among other setbacks.
Despite the challenges, more business could be on the way. A fresh round of development at the mostly empty Mather properties off Highway 50 is expected to move forward when the market turns. In February, the county invited nearly 100 developers to visit the business park and make bids to develop nine parcels totaling 1,200 acres. More than one developer could be selected for the job, which is the first opportunity to build on the land since the base closed in 1993.
“It’s less about what you can offer us and more about what you’re capable of doing,” says Rob Leonard, director of Sacramento County’s Office of Economic Development and Intergovernmental Affairs and former executive director of the county’s Department of Military Base Conversion. “It’s not a fire sale. We are about the quality and character of this development. But we’ve got skin in the game.”
Development possibilities include a business park, according to Leonard, who says the county is considering a “mixed bag” of options, including a school and a sports complex.
When the bases closed military operations between 1993 and 1995, they left millions of vacant square feet, plumbing and electrical infrastructure mired in environmental problems and code compliance failures. Leveling everything and starting over was out of the question, but redevelopment seemed financially epic, too.
Such surplus federal property can be transferred at no charge to public entities for public uses, including parks and schools. But even with that caveat, Sacramento County wanted little to do with Mather when it was the first to close shop.
“It’s the ugly stepchild that doesn’t fit with anybody,” Leonard says. “We [couldn’t] afford to have them give those buildings to us. The market said ‘no thanks.’ The cost of environmental cleanup at some of these properties cost more than the property value.”
The county’s only other option was to let the property sit — stagnant and blighted — so it decided to take the redevelopment forward. Fifteen years later, the estimated value of the privately owned properties within Mather Business Park in the 2008 fiscal year was $600 million, almost all of which was created after the base was decommissioned, according to the county’s Office of Economic Development and Intergovernmental Affairs. Likewise, McClellan Park’s estimated property value for the same time period was $675 million, including the park and properties along Watt Avenue in the project’s redevelopment plan. The assessment does not include parcels still owned by the county.
“It’s going to continue to grow, and as the economy moves, we’re going to see development that brings a new era, particularly at McClellan.”
— Rob Leonard, director, Sacramento County’s Office of Economic Development and Intergovernmental Affairs
“These facilities were off the tax rolls, so the new assessed values started from zero and built up, so clearly that’s good for the regional economy,” Leonard says.
Before the creation of McClellan’s redevelopment area, the property was worth about $230 million. In 2001 investors Larry Kelley and Stuart Lichter, organized as McClellan Business Park LLC, bought the park from the county for about $85 million.
Because Depot Park at the old Army base is still owned by the city, assessed values are unknown, though the city estimates that more than a half-million dollars in sales tax were generated last year by businesses within the 2.2 million-square-foot Depot Park. Comparable numbers for Mather and McClellan parks were not available.
“[The parks] will easily double in value (from this point),” Leonard says. “Take a look at the properties we’re looking to engage the development community in; we’re going to see high-quality development. It’s going to continue to grow, and as the economy moves, we’re going to see development that brings a new era, particularly at McClellan.”
McClellan was a federal industrial complex and as such is now uniquely equipped and appealing to manufacturing and high-tech companies. Combine that factor with favorable market rates and a solid, local work force, and Leonard says you can see why McClellan has been successful.
“We ship 18 to 25 truckloads daily out of this facility and receive about that much in raw materials daily, so the proximity to the freeway system and our customer base has really been beneficial,” says Joe LeRoy, owner of Sacramento Container Corp. and its 160,000-square-foot warehouse in McClellan Park.
McClellan Park accounts for more than 300 public and private establishments involved in manufacturing, warehousing, aviation, aviation maintenance and high-tech operations. Such operations fit well at McClellan because of the infrastructure available, which includes airplane hangars, rail lines and buildings with massive floor plans. The park boasts 8.5 million square feet and 750 undeveloped acres.
McClellan’s airstrip and hangar space has appealed to the likes of DHL International Ltd., United Parcel Service of America Inc. and Intel Corp. The facilities lend themselves to large aircraft maintenance and storage, including Google’s corporate 767 at one point and the Fry’s Electronics Inc. corporate 747. The airport isn’t quite breaking even, according to Leonard, but it’s underwritten by Sacramento International Airport.
“We’re a whole ZIP code, and there’s no reason that people couldn’t work here, live here and shop here,” says Kelley, McClellan’s developer, noting the 140 units of existing military housing that have been spruced up and are now nearly full.
Mather, on the other hand, lends itself to mixed-use development largely because it includes a number of large, noncontiguous parcels. “It has the airport for distribution and logistics, but maybe it will have less manufacturing,” Leonard says. “It really goes in a different direction, largely driven by the fact that Mather didn’t have a lot of facilities to start with.”
But the cliché ‘If you build it, they will come,’ doesn’t necessarily apply to military base overhauls. Because there are so many expensive problems associated with the transformations, few such conversions nationwide have realized the success of those in Sacramento.
“We’re a whole ZIP code,
and there’s no reason that people couldn’t work here, live here and shop here.”
— Larry Kelley, president, McClellan Park
“The base was still active when we were looking for space,” LeRoy says. “One of my concerns initially was that suppliers and visitors had to go through the process of entering an active base. And obviously, another one of the concerns was environmental.”
Before the county could deal with the bases, it had to deal with what was under and around them: buildings constructed without permits and with lead, asbestos, contaminated groundwater, nonsensical plumbing and electrical systems and a slew of other headaches.
The Air Force has spent roughly $450 million in environmental cleanup at McClellan, and the developers have extended an additional $40 million on sewer, drainage and code compliance.
“The biggest problem is groundwater contamination, which will take the Air Force at least 30 years to pump and treat,” says Kelley, pointing to one of the factors that originally made tenants reluctant. “It’s not a health issue, but it still freaks people out.”
Although LeRoy initially had environmental concerns, his business has not had problems. “It’s been an ideal location for us and our business,” he says.
As at Mather and the depot, old buildings, constant construction and general skepticism continued to hamstring development. Plus, because of the Base Closure Community Redevelopment and Homeless Assistance Act of 1994, which gives transitional- and affordable-housing projects a high-priority claim for reusing space at surplus military bases, McClellan and Mather have also opened their doors to homeless housing.
At Mather, the Mather Community Campus offers enough housing for 35 families with children plus 200 singles. The program is partially located in the old barracks, which have been renovated and furnished. Likewise, Serna Village at McClellan Park offers supported housing and lifestyle programming to nearly 300 people.
There was plenty of resistance from the community when these housing programs began to take form, according to Lucinda Serynek, communications and media officer for the county’s Department of Housing and Human Assistance. At the time of its inception, Mather Community Campus was going to be the largest transitional housing program in the country.
“If there is a homeless population here, I sure as heck didn’t know about it,” LeRoy says. “So, there has been zero impact.”
Some Community Campus graduates are now working within the business park, where they have been employed by The McGraw-Hill Co. testing center and the veterans hospital.
“Reputation was a challenge,” says Dick Fischer, Depot Park’s Seattle-based developer who took over in 2000. “People felt this was an old, run-down Army depot. But once they saw what was here, a lot of that evaporated.”
Fischer paid off about $16 million of the $26 million city loan to Packard Bell NEC, which had established its headquarters at the park in 1994. He also took over Packard Bell’s lease and option to buy. The lease expires in 2049. Until then, the city of Sacramento maintains ownership of Depot Park, but it will eventually sell, according to city project manager Melissa Anguiano, who pegs the purchase price at 75 cents per square foot.
Unlike those at Mather and McClellan, the Depot Park buildings are original. Very little was demolished, and little had to be rebuilt, according to Fischer. Still, infrastructure was a challenge. “The successful conversion took a lot of creativity,” he says. “We’ve done some cleaning up.”
Lease rates at Depot Park are competitive, according to Fischer, who says the benefits for locating a business at the depot come down to details. “We’re doing an extraordinary amount of service for the price,” Fischer says. “Security is a big deal — we have a guarded gate, we have competitive electrical rates and maintenance is nearly instant because we have a full on-site maintenance staff.”
It’s because of those perks, Fischer says, that Depot Park’s occupancy rate has stabilized at 85 percent. McClellan has a 65 percent occupancy rate though it’s much larger.
“There are communities across the nation that have struggled with [base closures] and are still struggling,” Leonard says. “They look to Sacramento. We were creative and worked to rewrite the rules of how the federal government dealt with closed bases. What we have done has increased the value of these facilities. … We’re well-positioned for the future.”
