San Antonio, home to the Alamo, refers to itself as "Military City USA." So this Texas metro had a big stake in the Defense Department's $35 billion Base Realignment and Closure (BRAC) plan, which was signed into law in November 2005 and officially concluded on Sept. 15, 2011.
During that period, the Pentagon closed 182 bases, combined 26 others into a dozen joint bases and regions, and shifted 123,000 military personnel to new locations, 70,000 of whom were permanently relocated to the U.S. While no complete statistics are available, it's a safe bet that tens of thousands of government-employed contractors followed their jobs to new bases around the country.
In San Antonio, BRAC combined Fort Sam Houston's operations with Randolph and Lackland Air Force bases and consolidated five major enlisted military medical training institutions from across the country into Fort Sam. The federal government spent $3.4 billion to upgrade and expand Fort Sam Houston, and BRAC was projected to create 11,000 new military and contractor jobs locally. San Antonio's Military Transformation Task Force called BRAC "the largest economic development event in the city's history."
That base consolidation, through September, spelled more than $8.3 billion in positive economic impact for the city. But BRAC wasn't enough to keep San Antonio's housing market from taking a nose dive. Annual new-home closings there plummeted by 69% between 2005 and 2011, to 5,377 units this year, according to Hanley Wood Market Intelligence estimates. (Oddly, new-home prices during this period actually rose by nearly 17% to a median of $188,449.)
|New Home Closings in BRAC-impacted markets|
|Bakersfield, CA (Naval Weapons Station)||4,493||5,912||3,997||2,159||1,482||1,138||735|
|Baltimore-Towson, MD (Aberdeen Proving Ground, Fort Meade)||7,403||7,408||5,355||3,769||3,184||3,541||2,355|
|Colorado Springs, CO (Fort Carson)||5,441||4,829||3,108||2,062||1,417||1,546||1,170|
|Columbus, GA-AL (Fort Benning)||498||545||372||350||440||367||312|
|El Paso, TX (Fort Bliss)||3,894||3,960||3,420||2,843||2,763||2,664||2,091|
|Indianapolis-Carmel, IN (Defense Finance And Accounting Services)||8,268||7,458||5,549||3,621||2,397||2,296||1,518|
|Richmond, VA (Fort Lee)||5,285||4,351||4,237||2,946||2,063||1,729||1,289|
|San Antonio, TX (Fort Sam Houston)||17,747||21,409||17,889||11,887||9,276||8,163||5,377|
|St. Marys, GA (Submarine Base Kings Bay)||444||266||118||108||54|
|Virginia Beach-Norfolk-Newport News, VA-NC (Naval Shipyard, Station and Support Activity||4,411||4,547||3,976||3,045||2,306||2,064||1,647|
|Greater DC-Va. (Quantico Marine Base, Fort Belvoir)||31,626||26,606||20,309||12,835||11,995||11,085||7,182|
Big Bang, or Whimper? The Department of Defense's recently completed base realignment was not enough to stanch the housing downturn in the bases' local markets, based on closings data in selected metros.
The same scenario appears to have happened in several other BRAC-affected markets (see chart above). Under federal law, forts and bases can house only up to 35% of their respective personnel on the premises. So it was logical, as bases and installations expanded, for builders to assume they'd see more customers. But most builders contacted say BRAC's impact on their sales has been modest to imperceptible.
"BRAC has been huge for Huntsville, and will continue to be a star because of Redstone Arsenal," says Michael Friday, owner of Woodland Homes in Alabama. He is referring to the U.S. Army installation, which as a result of BRAC created an estimated 10,000 direct and indirect jobs, with thousands more to come potentially, as Raytheon is building a $70 million missile plant at Redstone, and a fourth wing will be added to Redstone's Von Braun Complex.
But Friday says his company just hasn't seen the residual bump in home sales it was anticipating. "I think [BRAC] will eventually be good for builders, but not just yet," he tells Builder.
He's hoping to eventually capture some of the new arrivals who are currently renting. BRAC, say builders and developers in several markets, has been a boon to rental properties, as relocated military personnel are often reluctant to purchase a house when they could get shipped out to another installation or country, like Afghanistan, within a year or two. A number of the enlarged bases are, in fact, training centers that recycle personnel constantly.
Six years after BRAC launched, the markets that surround bases can finally assess its economic impact. Several have hailed BRAC as the gift that will keep on giving. For example, once the $3.5 billion expansion of Fort Benning in Columbus, Ga., is completed in 2016, the annual regional economic impact is estimated at nearly $6 million, with the expansion alone accounting for $1.65 billion of that growth.
Various sources have projected that Columbus will gain more than 22,000 new jobs as a result of BRAC's transformation of Fort Benning. An expanded Fort Meade in Maryland is expected to create 22,000 jobs and have a $5 billion per year positive impact on the region by 2015, according to the Anne Arundel Economic Development Corporation. The economic impact of Aberdeen Proving Ground, also in Maryland, has ballooned to $20 billion from $3.5 billion before BRAC, estimates Donald Fry, president and CEO of the Greater Baltimore Committee, a business coalition. Fort Bliss's expansion, which included $4.6 billion in construction, brought between 16,000 and 20,000 new jobs to El Paso, Texas. And Fort Belvoir in Virginia reportedly has gained 20,000 jobs, and is the site for a new $1 billion hospital.
Taxpayers, though, are less likely to be as pleased with BRAC's outcome. In its 2009 audit of BRAC, the Government Accountability Office reported that cost overruns at several bases weren't being fully accounted for, so the estimated cost savings from BRAC measures, originally projected at $36 billion, might ultimately be closer to $14 billion. GAO also stated that potential savings through 2025, which the Pentagon had projected at $2.3 billion, would actually be $273 million.
That BRAC may not have lived up to its advance billing completely shouldn't surprise anyone who appreciates the vagaries of government budgeting and politics, or the unpredictability of world events. But such acknowledgements won't console builders who were counting on BRAC to provide a much-needed stimulus for their drooping housing markets, only to be disappointed.
Impact Hard to Gauge
It was inevitable that some builders would gain from BRAC. In San Antonio, local sources point to Armadillo Homes as one builder that's been generating a sizable percentage of its sales from military personnel and government contractors. (Calls to Jeff Czar, Armadillo's president, and Victor Mendoza, its director of sales, were not returned.) To capitalize on Redstone Arsenal's expansion, Friday says he adjusted his company's search-engine optimization so more out-of-state prospects looking online for a house in Huntsville would notice Woodland Homes. "Based on the numbers we've seen, that was successful because we could track where the leads came from," he says.
Between 2006 and 2011, out-of-state buyers accounted for 14% of sales for Reston, Va.–based Stanley Martin Homes, compared to 11% during 2000 through 2005. But Andy Hughes, this builder's marketing research manager, can't say for certain how many of these customers BRAC contributed. "These folks don't wear name tags," he muses. Hughes notes, too, that there has also been a big buildup in the government's Homeland Security department in D.C., which might have accounted for a portion of these out-of-state buyers.
"BRAC has been a net positive," Hughes asserts. "It's hard to quantify, but it has brought more people to the area." That hasn't been the case everywhere, though. At some installations BRAC changes have yet to occur, as at Fort Carson in Colorado Springs, Colo., which won't be receiving a new helicopter brigade until 2013.
Then there's Arkansas' Little Rock Air Force Base, which via BRAC was supposed to gain nearly 7,000 new jobs. "But a lot of the dominos didn't fall," explains Bob Oldham, the base's chief of public affairs. Little Rock was supposed to absorb personnel and aircraft from Ellsworth Air Force Base, but that base didn't close, so Little Rock's personnel and job gains "were minimal," says Oldham. Builders noticed. "We've seen a few extra people come down here, but it wasn't as strong" as the Pentagon suggested, observes Jack Wilson, who owns Woodhaven Homes in Little Rock.
Despite this, Wilson's business has been "pretty strong," and his company expects to close 35 homes in the fiscal year that ends next March 1. Joseph Burak, executive director of the Greater Little Rock HBA, notes that permits in the area, after a steep drop from 2007, have bounced back in recent years and rose a bit in 2011 to around 800.
But builders and developers in other markets where housing demand remains soft feel more aggrieved. Bill Hart, a local builder in Columbus, Ga., goes so far as to call claims by the Pentagon and the local Chamber of Commerce about Fort Benning's job creation "propaganda" because he has yet to see evidence of BRAC increasing the area's population substantively. Hart notes that he and other builders and developers who bought land in anticipation of that population growth are now either struggling or are out of business. "So it's hard not to be resentful."
While BRAC-instigated land speculation certainly occurred, it's unlikely that it was widespread, given market conditions. Michael Moore, president of Ironside Development in San Antonio, which provides finished lots for entry-level builders, says that speculation in his market was tempered by the fact that "there was already four years' supply [of lots] on the ground." Lauri Payson, Stanley Martin Homes' vice president of marketing, recalls that while land acquisition was "definitely" part of her company's conversation about how to respond to local base realignments, the builder ultimately delayed purchases because the overall housing market was so weak.
Where Relocations Went To Live
While BRAC may not have helped builders much yet, it surely increased demand for rental units in their markets. The transience of military life is one reason why relocating personnel choose to rent; the difficulty of unloading an existing home in their former city is another. Hart says renter demand has "gone wild" in Columbus, Ga., as a result of BRAC. Caviness and Cates, a builder in Fayetteville, N.C., home to Fort Bragg, includes in its portfolio about 1,000 rental apartments, "and we're at 98% occupancy," says co-owner Chris Cates. Next year, South Carolina-based The Mungo Companies intends to expand its business that leases homes temporarily to buyer prospects to its Raleigh, N.C., market, partly to cash in on BRAC-related relocations, says CEO Steve Mungo.
Builders interviewed for this article mostly believe that any benefits they realize from BRAC will come later, if they are successful at converting a portion of these renters to owners. Friday of Woodland Homes, for one, thinks that's a good bet because, he contends, once people move to Huntsville they want to stay there and raise families. Troops returning from the Middle East might also feel the same way about staying in scenic Colorado Springs, posits John Cassiani, current president of that market's Housing and Builder Association.
Builders, though, could inevitably find themselves competing with on-base housing whose quality, since the 1996 passage of the Military Housing Privatization Initiative, has been improving. Since privatization, Hunt Military Communities has been awarded 26 base projects comprised of more than 31,500 units with project costs in excess of $5.5 billion, according to its website. After taking over a 50-year, $111 million housing contract at Little Rock AFB in 2008, Hunt has since renovated 866 homes, built 134, and demolished around 300, says Mary Holliday-Sopko, Hunt's community director.
Last April, Fort Carson extended its housing contract with Balfour Beatty Communities—whose portfolio includes 43 military bases and 30,000 homes in 20 states—by $100 million to build another 308 homes. That project will include 180 four-bedroom townhouses, 120 three- and four-bedroom duplexes, and eight single-family homes. Six four-bedroom homes will be one-story and accessible to persons with handicaps. This contract, which Balfour Beatty took over in late 2003, has also been extended to include the installation of air-conditioning systems into 837 legacy homes, says company spokesperson Kathleen Grim.
Most builders are probably like Friday, who viewed any sales traction from BRAC as gravy and didn't factor it into his or her production or revenue projections. And there are plenty of reasons for builders to look askance at business stemming from defense spending.
Last July, the Army announced a budget-cutting move that it would eliminate about 8,700 civilian jobs nationwide by September 2012. Those cuts would affect as many as 70 Army facilities in 37 states. At presstime, Congress was debating the National Defense Authorization Act that would whittle the 2012 defense budget by $19 billion to $554 billion for base operations and $115.5 billion for the wars in Afghanistan and Iraq.
Consequently, the 2005 BRAC, whose cost exceeded the four previous BRAC measures combined, could turn out to be a once-in-a-lifetime maneuver or the sign of things to come as the United States reduces its military presence in areas of the world such as Europe.
Regardless of whether or not BRAC goosed new-home sales, builders in markets that depend heavily on the military-industrial complex for their economic life can't ignore this sector when they are trying to figure out what lies ahead. "In 2005, 33% of our local economy depended on defense," says Cassiani about Colorado Springs. "Now, it's nearly 40%, with aerospace, NORAD, the Air Force Academy, and bases thrown in."
However, their recent past experiences, along with the fact that defense spending is no longer untouchable as a budget item, are likely to give builders pause before they assume that the next BRAC round, which is scheduled to begin in 2015, will produce more buyers for their homes.