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McClellan Plan Relieves the Pain of Base Reuse

Describing the closing of a military base as successful might strike some people as a poor choice of words. Anybody acquainted with base closures knows they are traumatic events. The initial trauma, of course, is the loss of jobs and resulting economic depression that befall surrounding communities. The secondary trauma, which happens more slowly, is the series of barriers that communities encounter in their efforts to reinvent a base into an office park or airport. Redeveloping bases can be difficult because basic infrastructure roads, sewers, electricity distribution is often outdated or lacking. And the Pentagon can be a stumbling block until it agrees with local officials on a property appraisal. Without a conveyance agreement from the Pentagon, redevelopment plans cannot move forward. In the case of McClellan Air Force Base in Sacramento County, however, it is finally possible to talk about a successful base closure without a hint of irony. With final closure just over a year away, the conversion process is already well underway to change McClellan AFB into McClellan Park, a master-planned business park with an ultimate buildout of 17 million square feet of commercial space. Already, private businesses have leased about 1 million square feet of industrial space on the base, and several million more currently are under negotiation. One of the tenants, Arctic Slope, is an aircraft maintenance outfit that has obtained permission from the Pentagon to use military runways for commercial purposes. McClellan, in fact, is the birthplace of what is known locally as Hot Turnover the military base that starts the conversion process long before the official closure date, creating a new job base before the military leaves. As such, McClellan probably represents the most progressive thinking in base reuse anywhere. The stakes are large at McClellan, where 10,000 people, both civilians and military personnel, worked in 1995, and where about 4,000 work now. As one of only five of aircraft maintenance depots in the country, McClellan is a highly developed industrial complex. Although military bases rarely translate easily into commercial real estate, McClellan is the exception. The base has 8 million square feet of space available for lease, almost evenly divided among office space, industrial, and research-and development and warehousing. "Sacramento is a great place to do a case study of base closure," said Rob Leonard, executive director of the county's base reuse department. Sacramento has experienced base closures in all three rounds of base closures under the Base Realignment and Closure Act of 1988. The final round, in 1993, represented the biggest blow when the county was threatened with the loss of McClellan, one of its largest employers. A major setback preceded the current planning effort of converting McClellan into a private business park. Under a program known as "privatization in place," McClellan would have preserved several thousand jobs on the base by auctioning off different "workloads" to private companies. The Pentagon, however, rejected the plan, and made McClellan compete with Hill Air Force Base in Utah for the privilege of performing maintenance work for the Air Force. In 1998, Hill won the competition. Losing the competition "put a high-intensity light on the re-use of McClellan," Leonard said. The upside was that the planning that had gone into the "privatization in place" competition could now be applied to a different closure scenario. Another potential impediment was the changeover of responsibility for utilities, from the base to the local utility provider. In the past, "there was a reluctance on the part of the local utility to provide service to a base because the utility needed to upgrade systems, and there would be no ratepayers" to support the upgrades, according to Tony Gallegos, western regional director for the Office of Economic Adjustment, the Defense Department agency that coordinates base closures. In the case of McClellan, however, the Air Force agreed to become a ratepayer of the local utility, Sacramento Metropolitan Utility District, enabling the utility to get a head start on upgrading electrical service. Meanwhile, county officials are negotiating with Northridge Water District and PG&E to provide water and gas to the base; county sewer and storm-drain agencies plan to provide services to the base before closure. Particularly innovative is the lease agreement that the Pentagon signed with the base in 1998. The structure of the lease is uniquely flexible, because it is additive: Whenever the developer finds a tenant for an available vacant building on the base, the developer can amend the lease with a "serial supplement," that adds the building to the county's leasehold. This type of lease has a number of advantages for both sides. The military maintains control of most of the base, and carries the cost of maintenance. The developer has the option of marketing many different buildings to potential tenants, without being obliged to pay for their maintenance. Known as McClellan Park LLC, the development team is made up of Larry Kelley, developer of the master-planned Stanford Ranch in Rocklin; Industrial Realty Group of Redondo Beach; and Morgan Stanley Real Estate Fund III. New tenants at the base are expected to minimize the impact of the military departure. When McClellan AFB closes next year, in fact, about 4,000 jobs will remain, or roughly the current level of employment with the military in place. In short, McClellan will be that unheard of event: A base closure without a net loss of jobs. The military worked closely with local officials in 1998 to formulate a mutually acceptable appraisal of $90 million, to be paid over 40 years. Local officials are hoping the military will waive that purchase price under the "No Cost Economic Development Conveyance" program that allows local authorities to assume ownership if they spend more than the purchase price on infrastructure or rebuilding. The developer has agreed to buy the land from the county for $90 million after title is transferred from the federal government, whether or not the county itself pays for the base. The creation of what will likely become the largest industrial center in Northern California is newsworthy enough. The real importance of McClellan, however, is the example it provides of keeping the lights on at the base after the military plays taps for the last time. The only sad part is that the Pentagon, the largest single purchaser of research in the country, did not figure this out 12 years ago, before the cycle of base closures dealt pain to hundreds of communities in California and elsewhere.