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TABLE OF CONTENTS

Region Case Study – Enhanced Use Lease (EUL) Initiative. TABLE OF CONTENTS. Overview Enhanced Use Lease at Fort Sam Houston (FSH) Challenges & Solutions Benefits Lessons Learned. William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil. 050800SAPR05. OVERVIEW. WHAT IS EUL.

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  1. Region Case Study – Enhanced Use Lease (EUL) Initiative TABLE OF CONTENTS • Overview • Enhanced Use Lease at Fort Sam Houston (FSH) • Challenges & Solutions • Benefits • Lessons Learned William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  2. OVERVIEW WHAT IS EUL • 10 USC 2667 authorizes military departments lease non-excess real property • Seeks real estate value opportunities consistent with missions of the army • Selected lessee and Army work closely together to develop leasing strategy and business plan that are mutually beneficial to the Army and lessee William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  3. Region Case Study – Enhanced Use Lease (EUL) Initiative OVERVIEW • Enhanced Use Leasing offers Commanders and the Army numerous benefits: • It enhances mission performance through cooperative efforts with private developers; • Improves utilization of property; • Reduces base operating costs through improved business practices; • Stimulates the local job market; • Fosters cooperation between military services and the private sector; • Introduces valuable federal property into the local job market. • EUL is a rapidly growing program that is being aggressively leveraged across the country by various military installations. William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  4. Region Case Study – Enhanced Use Lease (EUL) Initiative SIGNIFICANT POTENTIALS • Provides additional funding mechanism through rental income • In-kind services • Cash • Relieves commanders of asset-related liabilities • Historic preservation • Environmental remediation • Reduces O&M costs • Adds vitality to installation • Improves morale through enhancement of facilities • Upgrades tenant services William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  5. Region Case Study – Enhanced Use Lease (EUL) Initiative TITLE 10 USC 2667 “THESE ENHANCEMENTS PROVIDE EXCEPTIONAL TOOLS TO MAXIMIZE UTILITY AND VALUE OF OUR UNDERUSED REAL PROPERTY ASSETS.” MAY 10, 2000 MEMORANDUM GUIDANCE FROM RANDALL YIM DEPUTY UNDERSECRETARY OF DEFENSE – INSTALLATIONS In-kind consideration may include: • Maintenance, protection*, alteration*, repair, improvement* or restoration* (including environmental) of property or facilities • Construction of new facilities* • Provision of facilities through requisition* • Facilities operation support* • Provision of other services related to activities that will occur on the leased property* *ALL NOTE EXPANSIONS OF AUTHORITY. William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  6. DOD PAYS OVER $1BILLION IN OFF-POST LEASES ANNUALLY Region Case Study – Enhanced Use Lease (EUL) Initiative OPPORTUNITIES • Reduce number of activities in off-post leases • Force protection concerns • Base Realignment and Closure (BRAC) • Restationing William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  7. Region Case Study – Enhanced Use Lease (EUL) Initiative KEY ELEMENTS OF BUSINESS & LEASING PLAN PROCESS Financing Plan Historic Preservation Plan Development Partners GARRISONS/ IMA USACE Local Community Infrastructure Development Plan Community Relations Plan HQDA Congress Market Analysis Army Requirements Environmental Plan William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  8. Region Case Study – Enhanced Use Lease (EUL) Initiative ENHANCED USE LEASE (EUL) AT FORT SAM HOUSTON (FSH) William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  9. Region Case Study – Enhanced Use Lease (EUL) Initiative LEASE INITIATIVE Beach Pavilion Complex “OLD” BAMC (BLDG 1000) 224,291 GSF NORTH BEACH (BLDG 2372) 135,964 GSF SOUTH BEACH (BLDG 2371) 136,954 GSF William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  10. Challenge Region Case Study – Enhanced Use Lease (EUL) Initiative FORT SAM HOUSTON EXAMPLE Changes in Medical Technology required New Military Construction Limited Repair & Maintenance Army Funding to underwrite Adaptive Reuse New 450 - Bed Hospital Opened in Spring 1995 Solution Adaptively reuse available historic real property assets in the absence of MCA and RPMA funding through lease with private sector using authorities under 10 U.S.C. 2667 which authorize Military Departments to lease non- excess property. William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  11. Region Case Study – Enhanced Use Lease (EUL) Initiative EUL AT FORT SAM HOUSTON (FSH) • Faced with the challenge of finding and maintaining adaptive reuse for three vacated historic facilities totaling more than 500,000 gross square foot. • Demolition was not an option due to historic nature of these unique properties. • No Army funds for renovation. • FSH successfully secured Congressional approval to proceed in an unprecedented use of an existing real property leasing statute (U.S.C 2667). • Developed framework for a public-private partnership programmed to yield $50 million to Army during the 50-year lease period. William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  12. LESSON LEARNED SHOULD REDUCE TIME REQUIRED FOR FUTURE LEASES JAN 00 APR 00 JUN 01 Region Case Study – Enhanced Use Lease (EUL) Initiative FORT SAM HOUSTON KEY MILESTONES MAR 03 JUN 03 USARSO MOVE INTO LEASED FACILITIES MAY 00 SUBLEASES SIGNED FOR USAMISSA, USARSO, AND SWRO, BETWEEN WESTON/ORION AND COE LEASES SIGNED BETWEEN BY WESTON/ORION AND ARMY CORPS OF ENGINEERS DEVELOP BUSINESS AND LEASING PLAN JAN 99 APR 95 AWARD CONDITIONAL LEASE CONDUCT INDUSTRY CONFERENCE DEVELOP DRAFT REQUEST FOR QUALIFICATION COMPLETION OF NEW BROOKE ARMY MEDICAL CENTER William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  13. Region Case Study – Enhanced Use Lease (EUL) Initiative STATUS • Old BAMC • Sub-leases signed in Jun and Jul 03 • Abatement began in Jul 03 • Renovation followed abatement • Completion date – May 04 • North Beach • Sub-lease signed in May 03 • Abatement started Jun 03, completed Aug 03 • Renovation began Aug 03 • Completion date is Nov 03 / Jan 04 • South Beach • Sub-lease has not yet been signed • Renovation has not yet begun William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  14. Region Case Study – Enhanced Use Lease (EUL) Initiative LEASE BENEFITS DEVELOPMENT PARTNERS U.S. ARMY • REDUCED OPERATING COSTS • PRESERVATION OF HISTORIC FACILITIES • CONSISTENT WITH ARMY MISSION • IN-KIND SERVICES ($253M PROJECTED) • SUSTAINABLE DEVELOPMENT • BEST PRACTICES • COMMUNITY INVESTMENT • UNIQUE BUSINESS OPPORTUNITY WIN-WIN LOCAL COMMUNITY TAX PAYERS • LOCAL DEVELOPMENT TEAM • INCREASED LOCAL BUSINESS REVENUES • OPPORTUNITIES FOR ECONOMIC DEVELOPMENT • RESPONSIBLE STEWARDSHIP • OF RESOURCES William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  15. Region Case Study – Enhanced Use Lease (EUL) Initiative LEASE TERMS • 50-year lease with Orion (Jun 01 – May 51) • Four 10-year options • Army shares proceeds as percentage of net cash flow • Years 1 – 13 of lease 10% • Years 14 – 25 of lease 25% • Years 26 – 30 of lease 45% • Years 31 – 50 of lease 50% • Proceeds paid in cash or in kind services William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  16. Region Case Study – Enhanced Use Lease (EUL) Initiative USAMISSA SUB-LEASE TERMS • North Beach • 17-year lease • Approved May 03 • 75,136 SF • $23.75 per SF • $1,784,480 annual cost • $5.25 operating expense begins in year two • $394,464 annual cost • Contract completion Nov 03 / Jan 04 • Avoids demolition bill of $15M • Commercial lease $ returned to O&M funding • Medical system protection facilitated William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  17. Region Case Study – Enhanced Use Lease (EUL) Initiative IMA-SWR SUB-LEASE TERMS • Old BAMC • 17-year lease • Approved Jul 03 • 51,000 SF • $24.50 per SF • $1,249,500 annual cost • $5.25 per SF operating expense begins year 2 • $267,750 annual cost • Contract completion May 04 William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  18. Region Case Study – Enhanced Use Lease (EUL) Initiative USARSO SUB-LEASE TERMS • Old BAMC • 17-year lease • Approved in Jul 03 • 114,816 SF • $24.50 per SF • $2,812,992 annual cost • $5.25 per SF operating expense begins year 2 • $602,784 annual cost • Contract completion May 04 "BROOKE ARMY MEDICAL CENTER HAS BEEN A TREASURE FOR THE ARMY ALL THESE YEARS," HUTCHISON SAID. "BUT IT'S ALSO RIGHT FOR EFFICIENCY. WE ARE GOING TO SAVE THE TAXPAYERS $125 MILLION IN NEW MILITARY CONSTRUCTION DOLLARS. William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  19. William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  20. William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  21. William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  22. Region Case Study – Enhanced Use Lease (EUL) Initiative CHALLENGES & SOLUTIONS William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  23. Region Case Study – Enhanced Use Lease (EUL) Initiative CHALLENGES AND SOLUTIONS • Approved lease at FSH occurred pre -11 Sep 01 and subsequent upgraded Force Protection Conditions. • The 911 scenario dramatically changed the potential market for the leased facilities. • The Developer’s solution was to negotiate primarily with Department of Defense and other federal entities. • At FSH, the Army’s initial project was to receive as much as $253 million over the term of the lease with developer, however, time has shown that $50 million may be a more realistic sum. • In-Kind Services present viable alternatives. William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  24. Region Case Study – Enhanced Use Lease (EUL) Initiative CHALLENGES • Implementation of a plan that is economically feasible for both the Army and developer • Jurisdictional issues • Securing required army and congressional approvals prior to changes in current market • Army approval processes versus developers’ need for ROI in near future • Historical preservation compliance with Section 106 of the National Historic Preservation Act • Developing a lease instrument that achieves balance needed between installation, Corps of Engineers and commercial interests and requirements William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  25. Region Case Study – Enhanced Use Lease (EUL) Initiative EUL BENEFITS William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  26. Region Case Study – Enhanced Use Lease (EUL) Initiative EUL BENEFITS • Unleashes captive value by unlocking unrealized value of property. • Is a flexible alternative to demolition and/or excess property. • Supplements under funded facilities costs by reducing BASOPS and maintenance costs. • Preserves and maintains historic properties and can cover associated high costs. • Modernizes Installation assets. • Enhances mission and quality of life. • Can help stimulate and encourage private investment. William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  27. Region Case Study – Enhanced Use Lease (EUL) Initiative WHY PURSUE EUL? • Facility requirements vs. resources • Alternative tool to leverage private sector real estate solutions into Army facility requirements • Efficient utilization of Army real estate • A method to adaptively reuse available real property assets in the absence of MCA and SRM funding • Army participates in net cash flow William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  28. Region Case Study – Enhanced Use Lease (EUL) Initiative LESSONS LEARNED William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  29. Region Case Study – Enhanced Use Lease (EUL) Initiative LESSONS LEARNED • Model your EUL project after past successful model transactions – don’t reinvent the wheel. • Engage experienced real estate and financial professionals to help accelerate the process and keep you on track with your strategy plan. • Communicate early and openly with OMB regarding scoring implications of your project. • No two EUL projects are alike. Be flexible with changes in the project, the market and the economy and policy. • Address historic preservation issues and environmental concerns early and comprehensively. • Engage your Installation Commander William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  30. Region Case Study – Enhanced Use Lease (EUL) Initiative HOW DO I SELECT THE RIGHT DEVELOPER PARTNER? • Effectively articulate the opportunity at RFQ • Thoroughly plan the selection process • Assemble an integrated selection committee • Installation • USACE • Community representative (AUSA or local chamber would be good sources) • Real estate industry representative William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  31. Region Case Study – Enhanced Use Lease (EUL) Initiative KNOW WHAT IS MY DEVELOPER PARTNERGOING TO BE TAKING ON? • With historic properties, must coordinate with the State Historic Preservation Office and National Park Service • Must learn Army and garrison culture • Must drive, expedite and/or coordinate many approval processes • Of the business plan – Garrison, IMA, ACSIM, ASA – FM, ASA – I&E • Of master ground lease approval – USACE, IMA, ACSIM, ASA – FM, ASA – I&E • Of leases to government tenants • Stationing action (AR 5-10) HQDA • Tenant space allocation – (Appendix D, D.O), USACE, HQDA • Sole source justification or competition – USACE • Scoring – USACE, OMB, ASA – FM William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  32. Region Case Study – Enhanced Use Lease (EUL) Initiative FOR SUCCESS • Commanders must be project champions • Understand the legal & policy rules of engagement in EUL • Match requirements to opportunities unique to their installation • Understand community environment • Be prepared to market proposal to Army & local community • Select the right partners William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  33. Region Case Study – Enhanced Use Lease (EUL) Initiative FORT BLISS EUL William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  34. END OF BRIEF INSTALLATION MANAGEMENT AGENCY “Sustain, Support and Defend” William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  35. BACKUP SLIDES William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  36. Region Case Study – Enhanced Use Lease (EUL) Initiative EFFECT OF AMENDED PROVISION OF OMB CIRCULAR A-11, APPENDIX B CIRCULAR PROVIDES GUIDELINES FOR DIFFERENTIATING BETWEEN CAPITAL LEASES AND OPERATING LEASES • Capital lease – requires budget authority in first year equal to discounted cost of lease over the life of the lease – roughly equivalent, in most cases, to cost of constructing the leased asset. • Operating lease – requires budget authority during each year of the lease equivalent to the cost of the lease for that year only. William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  37. Region Case Study – Enhanced Use Lease (EUL) Initiative EUL APPLICATION AT FORT SAM HOUSTON (FSH) (Continued) • Public-Private Partnership framework included: • Developer funneling private funds into restoration and redevelopment of these properties. • Most of this would come directly to FSH as in-kind services while retaining ownership of the assets. • Additional economic benefits are realized through savings of growing maintenance and preservation costs. • Three years of intensive project management by Fort Sam Houston resulted in the approved lease in May 2001. • The effort resulted in a concept that is economically feasible to both the private developer and the Army. • Ensures Federal Historic Preservation compliance and reuse compatible with the installation’s requirements and mission. William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  38. Region Case Study – Enhanced Use Lease (EUL) Initiative EUL APPLICATION AT FORT SAM HOUSTON (FSH) (Continued) • Fort Sam Houston was invited to present its benchmarked Leasing Initiative Concept at the 2000 National Association for Installation Developer’s Conference. • Fort Sam Houston’s pilot project paved the way for others to follow. William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  39. Region Case Study – Enhanced Use Lease (EUL) Initiative LEASE INTIATIVE TIMELINE Apr 98 Chief of Staff of Army focuses on old Brooke Army Medical Center reuse and forms a team to develop recommendations Jul 98 Fort Sam Houston develops initial draft request for proposal for public-private leasing initiative Dec 98 Conducted industry conference to obtain industry and community comments on initial concept Jan 99 Corps of Engineers and Army General Counsel Review. Conceptual revision of RFP to align with tenets of 10 U.S.C. 2667 Apr 99 Army staff site visit to Fort Sam Houston William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  40. Region Case Study – Enhanced Use Lease (EUL) Initiative LEASE INTIATIVE TIMELINE Jun 99 Congressional committee consultation Dec 99 Release NOL advertisement in Commerce Business Daily Jan 00 Conduct 2nd Industry Conference Mar 00 Evaluate applications Apr 00 Award conditional lease May 00 Commence development of business & leasing plan Nov 00 Business plan brief to Department of the Army May 01 Briefed Congressional MILCON Oversight Committees Jun 01 Leases signed by WESTON/Orion and Army Corps of Engineers William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  41. Region Case Study – Enhanced Use Lease (EUL) Initiative LEASE INTIATIVE TIMELINE Sep 01 Market to private industry Jan 02 Annual financial report due Dec 02 Supplemental lease agreement signed to ensure DA/SHPO Programmatic Agreement compliance by leasee Apr 03 COE responds to OMB concerns to proposed USAMISSA lease May 03 COE signs sub-lease with Orion for USAMISSA occupancy (75,136 SQ FT) Jun 03 Coe signs sub-lease with Orion for USARSO occupancy (114,816 SQ FT) William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  42. Region Case Study – Enhanced Use Lease (EUL) Initiative LEASE INITIATIVE TIMELINE Jun 03 Abatement begins in North Beach Jul 03 Abatement begins in old BAMC Jul 03 COE signs sub-lease with Orion for IMA-SWR Occupancy (51,000 SQ FT) Aug 03 Lease signing ceremony held with Congressional, state, and city delegations in attendance Aug 03 Construction begins in North Beach Sep 03 Efforts continue to market lease facilities to both federal and private agencies William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

  43. Region Case Study – Enhanced Use Lease (EUL) Initiative LEASE INITIATIVE WAY-AHEAD Nov 03 USAMISSA to move into North Beach – computer room only Jan 04 USAMISSA to begin full lease move in Jan 04 Annual financial report with first year of income due from Orion May 04 USARSO and IMA – SWR scheduled to move into old BAMC William Thresher/IMSW-PLD/(210)295-2110/william.thresher@us.army.mil 050800SAPR05

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