How New Military Housing Doesn’t Fit the Part – A Guest Post from Llenrock Group
Mar 5, 2013
We’re pleased to be featuring a guest post from the Llenrock Group’s Eric Hawthorn. In this post, Eric explains how Picerne Military Housing is developing a public-private project for amenity-laden military housing at Fort Meade. Read more about the project in the below post and make sure to visit Llenrock’s blog.
Not Exactly Barracks
Logically, one would expect a commercial real estate opportunity only where there is capital waiting to support it. Office investors are flocking to San Francisco because there are newly-wealthy tech companies in need of space. Multifamily presents a strong opportunity in communities with an influx of recent college grads or young professionals. Developments, logic tells us, are only practical when there are tenants or buyers with cash in hand.
As a general rule, of course, this is true. But some investors and developers, particularly those focused on a niche asset type, sometimes find opportunity in theabsence of available capital.
Take Picerne Military Housing, a developer and operator of apartment communities on military bases in the Midwest, South, and on the East Coast. The firm, part of the Corvais Group, doesn’t build the sort of concrete-and-bunk-bed residence halls we associate with boot camp. In fact, Picerne’s projects wouldn’t look out of place in any suburban or urban neighborhood, and feature spacious bathrooms, kitchens, high-speed Internet, and (in the case of the project I’m about to discuss) free cable.
The U.S. military should mention that in its next advertising campaign.
Now, the company is doing something a little different. Mid-Atlantic Real Estate Journal reports:
Named Reece Crossings, the development will break ground this month with anticipated completion of the first apartment building and clubhouse December 2013. Reece Crossings is the U.S. Army’s first-ever privately developed, on-post garden-style apartment community for unaccompanied junior enlisted soldiers, sailors, airmen, marines and coast guardsman.
The entire 432-unit development is projected to cost $72 million.
But wait, you say. Didn’t I hear something about proposed cuts to the nation’s defense spending? Yes. In Washington’s current spirit of fiscal hand-wringing, the defense department’s is indeed one of the budgets on the chopping block. The State reports,
As another debt-deal deadline looms this winter in Congress, an unusual alliance of lawmakers has joined forces to put the Pentagon budget under greater scrutiny. In a letter last month to President Barack Obama and congressional leaders, 11 Democratic and 11 Republican lawmakers… asked that Defense Department spending be put squarely on the table in the coming clashes over debt reduction.
The bipartisanship of this request alone suggests budget cuts for the armed forces are likely.
To be sure, $72 million is a drop in the bucket for the defense department, whose two ongoing wars must cost roughly ten apartment complexes per day. Still, in light of this reality, it seems as if the public sector offers fewer opportunities for the private sector (not counting the cheap properties that hit the market through the BRAC-style fire sale of many federal assets).
The innovation of Picerne’s new project is that it’s not only a “public-private” endeavor, but that it will be built at “no cost” to the government. Even on federal land, this is essentially a private development, with its builder recouping expenses through operating income down the road.
Speculative? Maybe, but no budget cut in the near future will compromise the demand for quality military housing, especially at Fort Meade, which employs over 40,000, with at least 10,000 living on base.
Military housing isn’t the only niche asset adopting this strategy. As I discussed a while back, a number of major universities are facing or have already experienced major budget cuts (not from decreased enrollment, usually, but from decreased donations to their endowments). As a result, major student-housing firms like Campus Crest Communities are building and operating residence halls and apartments completely independent of their host universities.
Is this more expensive up front? Absolutely, and riskier as well. But just like the military, higher education will continue to hold a prominent position in America, and that means continued student-housing demand. By building, financing, and managing properties independently, these firms spend more money now, but enjoy greater autonomy (and potentially, returns) in the future.
Posted by: Raymond T. Cirz
