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CESB

2009 E3 Planning Honor

Enhanced Use Lease Development at Hill AFB

Ogden, Utah
ENTRANT: Malcolm Pirnie, Inc.
ENGINEER IN CHARGE: Donald W. Clause, P.E., BCEE


Map of current 1200 series building and proposed buildings after EUL development at the Hill AFB

Building 1286 at the Hill AFB, typical of deteriorating office space; insets show details.

Example of 1200 series building at the Hill AFB.

Typical example of obsolete World War II era buildings which will be replaced under the EUL.

Interior of one of the deteriorated 1200 series buildings, showing current ceiling and HVAC condition. Replacing or rehabilitating old buildings through traditional military construction funding would have cost hundreds of millions of dollars without eliminating existing inefficiencies.

World War II era warehouse and office building at the Hill AFB. The Air Force identified the need to replace over 1.2 million square feet of similarly deteriorating facilities. Housing numerous tenant and command entities in these substandard inefficient spaces reduced organizational effectivenes while increasing maintenance and utility costs.

Entrant Profile

Malcolm Pirnie was hired as the principal advisor by the U.S. Air Force to plan, prepare and execute an Enhanced Use Lease (EUL) of approximately 550 acres of non-excess and underutilized real property at Hill Air Force Base, UT.

The project arose from the need to replace over 1.2 million square feet of insufficient office space - quickly deteriorating World War II era warehouse facilities converted to offices, housing numerous tenant and command entities in substandard, inefficient space. Replacing or rehabilitating old buildings through traditional Military Construction funding would have cost hundreds of millions of dollars without eliminating existing inefficiencies.

The project included a market analysis and economic and concept feasibility study to determine the project's financial feasibility and provide an attractive real estate opportunity for developers. Malcolm Pirnie led all phases of this project from concept plan to developer selection and negotiation assistance, including:

No other consultants were involved.

Project Description

Project Background

The Air Force needed to replace over 1.2 million square feet of insufficient, deteriorating office space at Hill Air Force Base. New construction would cost over $400 million and rehabilitation over $200 million. Funding is not available in the Military Construction program for these alternatives and rehabilitation would not eliminate the inefficiencies of having staff working in over 100 buildings. The Air Force believed a better alternative could be to lease 550 acres to a developer in exchange for demolition of buildings and construction of new office buildings to meet the Air Force's future needs. An Enhanced Use Lease (EUL) such as this allows the military services to lease non-excess real property in exchange for services, construction or other consideration rather than cash.

Integrated Approach

As the sole consultant supporting the Air Force, State and local government representatives, and regulators, it was Malcolm Pirnie's responsibility to determine the EUL's feasibility, select and negotiate with a qualified developer, and to integrate environmental, existing infrastructure, anti-terrorism/ force protection (ATFP), public and government interface, and other issues associated with this complex project.

An iterative planning and management approach was developed in addressing these issues. Malcolm Pirnie wrote the Environmental Baseline Survey (EBS) and worked with installation and developer planners to design a 20 year, phased development beginning with "clean" parcels then onto contaminated properties as they are cleaned and released within the confines of the FFA and RCRA Permit.

This was done while balancing the economics of the business deal, ATFP requirements, existing utility and other infrastructure limitations and locations, personnel moves, demolition and regulatory requirements.

Associated environmental issues will be remedied through the project including the removal of asbestos and lead-based paint liabilities in existing buildings and construction of Silver LEED standard buildings; reducing energy costs.

Original/Innovative Applications

As the first and most complicated EUL project to be approved through the Air Force Secretariat's Executive Steering Group (ESG), the Hill AFB EUL required many original and innovative approaches.

There were no standardized practices for developing and executing Air Force EULs. Working with Air Force leadership, Malcolm Pirnie developed and implemented processes needed to leverage the value of the 550-acre parcel into over one million square feet of new, LEED Silver office space.

Malcolm Pirnie authored a Business Case Analysis (BCA) to determine the project's feasibility, analyzing value and highest and best use. Based on market conditions and other factors, Malcolm Pirnie concluded the fair market value of the project to be a conservative $10 million. Malcolm Pirnie then developed and advertised a Request for Qualifications, received proposals, and helped the Air Force select the best developer for the project based upon predetermined evaluation criteria.

Through negotiations with the developer, the project is now phased with the flexibility to react to market conditions. Rather than delaying 'payment' of consideration to the Air Force as normally occurs, the agreement provides the Air Force's consideration up front through an equity and revenue sharing structure. Phase I covers approximately 150 of the 550 acre area and will provide over 600,000 SF of state-of-the-art LEED Silver office space and equity valued at over $30 Million to the Air Force up front. Additionally, the demolition of the existing office buildings and over two million SF of commercial space will be constructed and leased during Phase I alone.

Concurrently, Malcolm Pirnie completed a comprehensive Environmental Baseline Survey (EBS). This involved performing visual sight inspections of over 600 acres and over 200 buildings, interviews and document research, and writing the EBS in six weeks to provide prospective offerors a snapshot of the property's environmental conditions and meet the Air Force's disclosure requirements.

Malcolm Pirnie helped negotiate and develop a business terms sheet, delineating the deal and setting the ground work to negotiate the final Master Lease and Master Development Agreement.

Quality/User Satisfaction

The Air Force Executive Steering Group (ESG) approved our Business Case Analysis and overall concept plan as one of its earliest approved EULs and the largest project of its kind undertaken by the DOD.

An EUL was successfully negotiated and signed on August 13, 2008. The final deal is comprised of lease revenue sharing, State of Utah Grants and tax increment financing, and as many commercial practices and standards as federal law allows

Malcolm Pirnie was successful in reaching acceptance of its approach through the ESG and our template will be used to formulate future EUL projects.

Complexity

This precedent-setting project was the first and most complex EUL project conducted for the DoD. The project is 550 acres stretched on a 3.5-mile front comprised of mixed parcels of clean and contaminated properties and occupied and vacant buildings and land. Numerous Site Development Leases will be put in place under each project phase and the final project will well-exceed a $1 Billion development budget financed through lines of credit, short term construction and mezzanine loans and longer-term private placement financing, and paid through lease revenues. Balancing these issues along with ATFP, utilities, security, etc. to a feasible, implementable project was critical to the success of the project.

Social/Economic Contributions

The Air Force will benefit from a unique revenue sharing scheme that will allow for the future construction of Air Force facilities at no cost to the Air Force. Over the project's life, the Air Force will recognize nearly $180 million of new construction on land previously valued at only $10 million.

Replacing the derelict structures is necessary from economic and quality of life perspectives. Numerous personnel work in substandard space and mission sensitive contractor activities are forced off-installation, decreasing efficiencies at a loss of over $11 million a year.

Hill AFB is the State's largest employer, and the project is critical to the State of Utah's economic growth initiative and supports Governor Huntsman's vision for an Aerospace Technology cluster at Hill AFB. Recognizing the importance of the project, the Utah State Legislature approved the creation of Utah's Military Installation Development Authority to be the conduit between the state, local cities and installation.


Warehouse and storage facilities on the Hill AFB site. The inefficiencies of having personnel and contractors spread over 100 buildings represented a yearly loss of over $11 million.

Artists rendering - overview of the proposed new facilities. Air Force officials set aside 550 acres to lease to a developer through Enhanced Use Leasing in exchange for demolition of selected buildings and construction of new office buildings meeting the Air Force's future needs.

Artists rendering of proposed new development. As one of the earliest approved EULs and the largest project of its kind undertaken by the Department of Defense, the Hlll AFB will enable derelict structures to be replaced with over 600,000 sq ft of state-of-the-art LEED silver office space.

Artists rendering of proposed retail development planned for the Hill AFB. This project was from the start a critical part of the State of Utah's economic growth initiative. Over the project's life, the Air Force will recognize nearly $180 million of new construction on land previously valued at only $10 million.


Artists rendering of proposed office space. This will replace substandard, inefficient space currently housing numerous tenant and command entities; contractors directly supporting Air Force missile and aircraft system programs had to find adequate space off-installation, increasing travel time and decreasing efficiencies.

Artists rendering of proposed new development. Malcolm Pirnie began the project by writing a Business Case Analysis to help determine the project's feasibility and analyzing its value; together with the Air Force, Pirnie determined the land's Fair Market Value to be $10 million. The developer was selected through a full and open competition to achieve the best value for the Air Force.