Special military leases give developers a leg up

The Water's Edge Corporate Campus is near Aberdeen Proving Ground in northeast Maryland, but developers with "enhanced-use leases" have the advantage of building right on military bases.
The Water's Edge Corporate Campus is near Aberdeen Proving Ground in northeast Maryland, but developers with "enhanced-use leases" have the advantage of building right on military bases. (Rob Carr/associated Press)
By Marjorie Censer
Capital Business Staff Writer
Monday, August 2, 2010

Just inside Aberdeen Proving Ground, Md., where new Army employees are arriving from New Jersey as part of a military base relocation process, a new business complex is taking shape.

But in this case, the tenants aren't military employees. They are contractors hoping to take advantage of a specially negotiated lease that allows developers to build on federal land and, in return, gives military installations a new way to get maintenance and construction done.

At Aberdeen, Baltimore-based St. John Properties has an "enhanced-use lease" with the Army Corps of Engineers that gives the developer the right to build on a 400-acre site. In return, St. John is contributing services to the installation, including relocating a recreation center on the base, as well as making payments to the state.

Though St. John didn't bid on the project -- it bought it from Opus East -- Gerard Wit, senior vice president at St. John, said it has paid off.

"We're the sole supplier . . . of office space that has the ability to be inside the gate at Aberdeen Proving Ground," Wit said of the office park, which is being built at the same time as an enormous Army complex that will house the military branch's C4ISR -- or electronics and intelligence -- organizations.

Defense contractors would "like to be sitting in the C4ISR building -- this is the next best thing," Wit said.

Bob Penn, the enhanced-use lease program director for the Corps of Engineers, said the Army has been using the program since 2001. The Corps of Engineers has closed on eight projects thus far and has five more under negotiation.

He credited enhanced-use leases with helping the Army make base improvements that would not otherwise have been possible because of tight budgets.

"We've had old, worn-out buildings that were vacant with environmental problems totally renovated," Penn said. Installations "just don't have [the] money to do everything that they need to get done."

A typical enhanced-use lease lasts 50 years, after which the federal government reclaims the land. Penn said the leases allow the government to continue leasing the property or to require the developer to restore the site or fix up the buildings.

In Maryland, the Navy is making use of the special leases at the Patuxent River Naval Air Station, the Solomons Island Naval Recreation Center and the Naval Support Facility Indian Head.

According to Edward Zeigler, a spokesman for the Naval District Washington, all three are in the early stages and developers have not been selected.

At Aberdeen, defense contractor CACI International is already using 60,000 square feet of space in one building, and St. John has signed 75,000-square-foot leases with both Raytheon and L-3 Communications, according to Wit. The developer has smaller leases in place with contractors General Dynamics and Boeing.

St. John hopes to break ground in the fall on a retail center near the business complex that will be open to the general public.

Penn said he expects the enhanced-use lease program to grow over the next decade.

Army installations "still have needs, but we're not in the greatest economic times, and budgets are still being cut," he said. "I see the program continuing to be viable."

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