Many people remember the rash of military base closures that seemingly swept the nation in the late 1980s and early 1990s. They symbolized opportunity gone awry and reverberated in towns that were heavily dependent on military and defense spending. Perhaps no other area felt the sting of this development more than Southern California. Now the region is viewing these former bases in a new light — once again full of opportunity. This time it’s real estate development opportunity.

Western Real Estate Business focuses on three former military bases to see how the real estate industry is reusing them. The following examples, all found in Southern California, give insight into the evolution of such properties.

Liberty Station

The many historic buildings at San Diego’s former Naval Training Center will add to the ambience of Liberty Station.

At the confluence of prime waterfront appeal, 80 years of naval history and sunny San Diego opportunity lies Liberty Station, a 361-acre property that is fast becoming a vibrant mixed-use community. Once San Diego’s Naval Training Center, the development features seven different components including parks and recreation, residential, office, retail, education, hotel, and civic, arts and culture.

The Corky McMillin Companies and the city of San Diego Redevelopment Agency are jointly developing Liberty Station. The new community will consist of 125 acres of parks and open space, including a boat channel leading to San Diego Bay, a 9-hole golf course, a 28-acre Civic, Arts and Cultural District — to be developed by the NTC Foundation, a private, nonprofit corporation — attractive shopping and restaurant locations, two upscale hotels, 349 single-family and multifamily homes, an office district and a 22-acre academic campus.

The master plan for this one-of-a-kind property calls for a unique blend of history and tradition with the fresh, scenic appeal of festival marketplaces, open-air courtyards and waterfront villages. As the company in charge of handling the leasing and marketing of the more than 1 million square feet of retail, office and educational space at Liberty Station, CB Richard Ellis is currently looking for developers and tenants with that creative sense of place that will complement the property’s overall setup.

The Naval Training Center began operations in 1923, and, over the next 74 years, an estimated 1.75 million recruits came through the base. In July 1993, it was announced that the station would be closed and redeveloped. Once it gained rights to the property, the city of San Diego spent several years developing its plans for the prized piece of land. Part of the process involved getting public input on the former naval base.

“They had community groups and meetings and the community at large formed committees and subcommittees and talked about design elements and things that they wanted to see,” says Mike Moser of CB Richard Ellis. “So there was a great deal of public and local input that went into the plan before it was even offered out to anybody. You had a wide range of views and opinions.”

Buildings at San Diego’s former Naval Training Center embody the rich architectural characteristics that form the design guidelines for the base’s rebirth as Liberty Station.

In October 1998, the San Diego City Council approved the redevelopment plans covering Liberty Station, and The Corky McMillin Companies were brought in a short while later to implement the plan. Because of the preservation focus in the redevelopment of the former naval base, there are a lot of guidelines and restrictions with regard to retrofitting the structures there. For example, the master developer and partners are currently working to combine two historical buildings into 150,000 square feet of shopping center space. The challenge is to preserve the old structures while fitting them with modern accommodations.

“In this case, the majority of the site is historical and so you’ve got to come up with a plan that will best utilize these historical structures for today’s uses,” says Moser. “It’s almost like we’re building within a movie set. We’re literally taking the façades of these buildings that are all historic and we’re maintaining those and then, within the confines of the façade, we’re gutting the interiors and building a new structure that will accommodate the needs of a grocery operator.”

Moser believes that bringing modern functionality to Liberty Station’s old structures while preserving their historical essence is one thing that makes this military base conversion so unique. “If you had the same piece of property and it was just a clean slate, you would probably design and develop something completely different,” he says. “In this case, we had buildings that had been around a long time and they may have been set up as a commissary or a medical clinic or barracks. They’re really not functional today for that type of use.”

The opportunity for different real estate uses at Liberty Station is abundant. Occupying 26 of the historic buildings located around the promenade, the 300,000-square-foot Civic, Arts and Cultural Center, scheduled to open in 2005, will offer plenty of lease space for various tenants and serve as a popular gathering spot during shows and festivals. In addition to the boat channel and golf course, plans for the NTC park include two recreation fields, two large picnic areas, a 9-acre esplanade for biking and walking, a sports plaza and more. The office district will eventually total 380,000 square feet of space with two Class A buildings expected to be completed in fall 2003.

Due to the need for infrastructure improvements, nearly the entire 361-acre property had to be shut down during the early stages of development. The Corky McMillin Companies’ obligation as master developer included upgrading Liberty Station’s streets and underground sewers as well as creating the parks, handling all the landscaping and building the new facilities. Right now, the housing portion of the project is open and nearly complete and High Tech High School is back in session again on the educational campus. Moser projects that most of Liberty Station will be on line by the end of 2004 or early 2005.

Heritage Fields

When 3,700 acres of prime real estate become available in Orange County, California, people in the real estate-hungry region take notice.

The former MCAS EL Toro, located in Orange County, California, has been renamed Heritage Fields.

El Toro, the former Marine Corps Air Station now called Heritage Fields, will be auctioned off in four parcels by the Department of Navy early next year. Through a partnership with the city of Irvine, the Navy projects that future entitlements on the land may include 3,640 residential units, 2.9 million square feet of office and retail space, more than 2,000 acres of mixed-use development and around 1,350 acres of open space and parks. In preparing for the public sale of Heritage Fields, the city has directed its efforts toward ensuring that private ownership and the vision of a vast park can come together.

When Measure W in Orange County was passed, the Navy got a clearer picture of how the former Marine station would be used. That’s when the city of Irvine stepped in with plans to annex the property and perform an exhaustive land-use study to determine the most productive way to dispose of it. The spirit of Measure W, which was championed by the city, was to convert the former base into a “Great Park” rather than make it into an international airport. After much time and debate, the voters sided with Irvine’s vision.

“There were a few things that would be commercial but for the most part you had 3,700 acres roughly of open-space parkland,” says Patrick Remolacio, senior vice president at Colliers Seeley International in Anaheim. “The Navy was going to sell it, just open it up to developers, who would come in and buy it and then try to negotiate with the city for development entitlements.”

The city of Irvine offered value to the Navy through its land-use study and the creation of tentative entitlements that would be available upon its successful annexation of the land. This master plan also covered the potential expansion of the existing Irvine Auto Center, the golf course and exposition zones like a 275-acre student campus.

“So there’s a myriad of additional entitlements that accrue to this property if the city of Irvine is successful in annexing it and then the future owners of the property buy into their proposed land-use plan and sign the development agreement,” says Remolacio.

Of course, the “Great Park” costs money to develop and maintain. The only way to cover the expense, without placing the burden on the local taxpayers, was to include that in the development agreement as a condition to receiving entitlements. The development fees that would factor into the agreement would be supplemented by the funds generated from bond districts.

“In a combination of roughly $200 million worth of development fees and another $150 million worth of bonding capacity that the property has, the city of Irvine figures that they can get this park paid for by private capital,” says Remolacio. “Then the balance of the revenue opportunities for the developers is going to be residential, commercial and all the other development opportunities that are going to generate revenue in the way of future land sales or build-to-suits.”

Remolacio estimates that the Local Agency Formation Commission will be finished with the city of Irvine’s application in November. At that juncture, the city will incorporate the entire property into its boundaries and assume jurisdiction and entitlement authority. Provided that a future property owner elects to sign the city’s development agreement — and the Navy has not made that a condition of sale — then development of Heritage Fields can begin.

The Navy originally wanted to sell the property in as many parcels as possible to establish a larger prospective bidder audience — as Remolacio states, more people can buy 5 acres than can buy 500. The city of Irvine, for planning and management purposes, favored a single-parcel auction. The parties compromised by agreeing to divvy up the former Marine station into four parcels, working together to define the boundaries of each. This way each successful bidder gets a piece of the park. All of the park structures and other open areas to be designated as part of the public trust municipality set up by Irvine will be conveyed back to the city.

“The net of what the developers keep is the stuff that they can develop. Everything else goes back to this public trust. [The developers] also get a pro rata share of that $200 million development fee based on, for the most part, the square footage of the land involved,” says Remolacio.

In marketing the enormous military base conversion and disposition, Colliers Seeley immediately recognized the need to help the government find its potential customers, a task made much more difficult by the four-parcel allotment. To try to expand the potential bidder base, Remolacio’s company developed the Partnering Opportunity Component of its marketing program. Colliers Seeley wanted to provide a platform for large, fully-integrated real estate companies and the much smaller but specialized development groups to find each other, join forces and leverage their different skills and resources in pursuing this massive development opportunity.

“So the retail guy gets in contact with the industrial R&D guy, who finds the right residential guy, who finds the cemetery guy for parcel 2,” says Remolacio. “We’re going to provide a vehicle to help those people post their interests and find one another.”

Colliers Seeley accomplishes this through its interactive Web site. According to Remolacio, 193 different development groups have self-registered on the site with 55 of those companies showing interest in partnering opportunities for the Heritage Fields auction, scheduled for early 2004. The online auction, which is the preferred method of disposition for the government, provides efficiencies, anonymity and the ability for bidders to respond to competition in real time throughout the bidding process.

Remolacio thinks the city of Irvine has performed admirably in structuring the potential land-use plan so that it’s compatible with the real estate needs of the surrounding communities. The plan also serves to balance the profit-oriented motives of the developers with the intrinsic values of the people of Orange County. The developers will benefit from such things as providing housing projects in a strong residential market while consumers can take pride in the park and recreation space.

Speaking from his knowledge of other military base conversions, Remolacio professes that a direct conveyance of land from the government to the future owners of the property is the most effective and efficient approach, particularly when it comes to properties of this magnitude and relative economic value.

“The expertise of the city’s redevelopment or economic development agency is in entitlement and entitlement processing,” he says. “They shouldn’t be put in the role of being a developer but they should be given the responsibility of providing the right kind of land-use planning and entitlement opportunities and processing because that’s what they do best. I think market forces are better left to work on their own natural paths. At the end of the day, the developer that pays the most money — which is good for the government and good for us as taxpayers — is going to end up owning the property.”

The first base realignment enclosure acts took place in 1988 with additional rounds taking place in the early-to-mid 1990s. Most of the former military bases closed during that time were transferred through either a public-benefit or an economic development conveyance, which meant basically that the government received no money in the process. With the heavy cost of military base cleanup before disposition, the federal government expended funds that could have gone toward its core mission like “buying aircraft carriers or F-18s or any of those other things,” says Remolacio. The public sale of old military bases like El Toro, and the money it generates, enables the government to avoid that circumstance.

Southern California Logistics Airport

Located on the site of the former George Air Force Base, Southern California Logistics Airport is a 5,000-acre multimodal facility served by rail, ground and air transportation.

The redevelopment of the former George Air Force Base in Victorville, California, into Southern California Logistics Airport (SCLA) is a huge undertaking. The effect that the 5,000-acre multimodal business complex will have on global commerce is just as big.

“What’s unique [about the project] is that it’s already gone through its conversion,” says Dougall Agan, principal at Laguna Hills, California-based Stirling Property Group, the master developer of SCLA. The project combines office and industrial space with a dedicated international transportation hub. “In a very short period of time, we’ve generated a tremendous amount of activity. We’ve leased about 2 million square feet of the existing facilities there at the airport and we’ve generated 2,900 jobs just at the airport alone.”

Three years ago, the U.S. Customs office opened at SCLA. Soon after, a three-flight per week international freight network was established, facilitating transport from Southern California to Hong Kong and Luxembourg. Currently, five divisions of Boeing operate out of the international air cargo airport. In addition, Stirling just finished a $20 million hangar for GE and a 320-acre ground lease with Pratt & Whitney.

In the “off-airport area,” Stirling has constructed a 1 million-square-foot distribution center for The Goodyear Tire & Rubber Company, provided another 500,000 square feet for M&M-Mars and recently signed ConAgra Foods, Inc. and Nutro Corporation to a combined 1 million square feet of space.

As with most military base conversions, the connection the master developer has with the presiding municipality or entitlement authority can make all the difference. “Because it is a public-private partnership, our development is kind of the best of both worlds,” says Agan. “We have the agility of a private enterprise coupled with a very stable, long-term, pro-business environment that’s instilled by the city of Victorville.”

SCLA’s users immediately experience the creativity that Stirling brings to the table in structuring real estate transactions. Plus, they have the confidence their move is of long-term value because of the city’s proactive track record and business-friendly programs, which include financial incentives, a streamlined entitlement process and utility benefits. Agan believes the joint effort of the public and private partners at SCLA and the resulting advantages are what differentiates this business location from others that tenants might consider.

The SCLA project is also the beneficiary of the Victor Valley Economic Development Authority, a consortium comprised of Victorville, San Bernardino County and a few other towns. The authority was organized upon the creation of the 60,000-acre redevelopment district that contains SCLA. Any tax increment in the territory goes toward infrastructure that helps SCLA expand and an incentive pool to help attract industry.

Only about one-fifth of the 5,000-acre site contains airport assets like runways, taxiways and hangars. The focus for the rest of the property is on industrial-type development that will be available for office, industrial, rail-served industrial and a variety of other uses like container storage and the staging of automobiles.

To get an idea of how massive the former Air Force base is, consider that Stirling has generated 5 million square feet of development for a project entitled at 43.5 million square feet. More projects, like the 380-acre rail complex to be shared by Union Pacific and BNSF Railway, continue to fill the SCLA pipeline.

“The requirements are so large,” says Agan. “That’s what we’re finding that’s unique. Our focus right now is getting our major anchors. We have the majors for the aviation uses. Now, we’re trying to do the same thing for the rail, to get the major players that are going to be involved with activating the terminal operation of that rail complex.”

There is a great deal of land at SCLA but, looking at Southern California’s growth projections, Agan and his colleagues know that the major migration pattern is east out of Los Angeles. Therefore, Stirling and partners are in a good position to accommodate the dramatic industrial growth coming their way. They also have the ability to provide safe harbor for manufacturing firms pressured to leave the state.

“This project’s sole objective is to create an environment where you can differentiate the real estate transaction and the operating cost to a point where you can compete internationally,” says Agan. The public-private partnership combines different strengths to make sure that a business can remain profitable.

At SCLA, one trend meets another — land made available through a military base conversion is positioned most advantageously for the rapid growth of the Inland Empire. It’s a busy intersection.

FROM SHELLS TO SHERRY The historic Presidio battery in San Francisco will be used for wine storage. It all makes perfect sense. A former San Francisco Bay Area restaurateur and current storage-company owner walks into an old military battery and sees a vast wine cellar. With his lease of the Presidio’s 106-year-old, 8,500-square-foot Battery McKinnon-Stotsenberg, Christo Kasaris is making his vision a reality in the form of his newest company, Presidio Wine Bunkers. The dank old bunker that once held mortar munitions for the Bay Area’s defense against enemies during three wars will now be used for the storage of fine wine. The battery’s interior environment is optimal for the aims of this wine aficionado with the temperature never rising above 59 degrees Fahrenheit and a relative humidity measured at 73 percent. “Given these two constants, the atmosphere inside the battery is ideal for storage of wine and antiques,” says Kasaris, the sole proprietor of Presidio Wine Bunkers. Battery McKinnon-Stotsenberg was built in 1897 by the U.S. Army and remained an active coastal installation until after World War II when its last weapons were removed. After the army left the Presidio for good in 1994, the Presidio Trust was created by Congress to manage the 1,491-acre park’s interior land and buildings, of which more than 60 percent are historic. The cavernous facility, the roof of which is still covered with plants and shrubs used to conceal its military purpose, is capable of holding up to 100,000 cases of wine. The reaction of those in the wine industry to this novel real estate acquisition? “I’m a wine writer and I associate with most of the people in the trade on an ongoing basis and they were just beside themselves that they didn’t think of it first,” says David Jones, chief wine consultant for Presidio Wine Bunkers. “It was an extraordinary reception not just for the idea but for the facility itself.” Kasaris’ company already has a few clients with many more in the pipeline for its grand opening this month. Jones expects around 80 percent of the customer base to be individual private collectors with importers, distributors and restaurateurs making up the rest. Presidio Wine Bunkers will provide two unique perks to customers. A tasting facility will be set up in either an alcove or separate room of the bunker, complete with period furniture appointments, a crystal chandelier and crystal stemware. Also, Jones will offer his consulting services on a complimentary basis for members storing wine at the facility. — Brian A. Lee

©2003 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.