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May 3, 2013

Lend Lease, InterContinental Obtain $465M to Build Private Hotels on Army Bases

By Gail Kalinoski, Contributing Editor

Lend Lease has secured $465 million in debt financing from Bank of America and is moving ahead with the third and final phase of renovating and developing more than 11,000 hotel rooms on 39 U.S. Army installations with Intercontinental Hotels Group-branded hotels.

Known as the Privatization of Army Lodging program (PAL), the $1 billion project is expected to be completed in eight years. The third phase will include approximately 3,800 new or renovated hotel rooms across 18 military installations. The program provides on-base lodging for soldiers, their families and government travelers. Operating under the name IHG Army Hotels, the renovated hotels will be run as Holiday Inn Express facilities. New construction will be operated as Candlewood Suites and Staybridge Suites brand hotels. Since the public-private project began in 2009, Land Lease has delivered six Holiday Inn Express hotels, including the first hotel at Fort Polk, La. There are five Candlewood Suites hotels under construction, including a 310-room hotel at Joint Base San Antonio in Texas that will be the largest Candlewood Suites in the world when it is finished. A Staybridge Suites hotel is planned for Fort Belvoir in Virginia.

“We should have Fort Riley (Kansas) and Yuma Proving Ground (Arizona) Candlewood Suites open by August,” Charles Smith, an executive vice president with Lend Lease (U.S.) Public Partnerships, told Commercial Property Executive. “We have yet to finish all the renovations. We are very close on A, the first phase. We’re on our way and making good progress on B (second phase) and starting on Group C (the final phase).”

The PAL program began in 2009 when Lend Lease assumed ownership of on-post hotels at 10 bases. Lend Lease, a subsidiary of the Australian-based conglomerate, had previously been selected as the asset manager, developer and design builder for the Army’s entire lodging portfolio. IHG, one of the world’s largest hotel groups, was chosen as the PAL hotel operator. In 2010, Land Lease began the second phase with hotel projects at 11 additional military installations.

The decision to privatize the on-post hotels, much like the Army’s housing facilities, came after a 2003 study found that more than 80 percent of the inventory need to be recapitalized and would cost the government more than $1.2 billion and take 20 years to complete. The PAL program saves the government money in several ways, including a 25 percent discount on per diem lodging costs for the service members, families and other official travelers. The military travelers can now take advantage of IHG guest loyalty reward programs at the on-base hotels, which weren’t available in the past.

Lend Lease has a 50-year ground lease with the Army that terminates in 2059. Any money left over after operating expenses is reinvested back in the renovation and construction projects.

“It’s a beautiful model for the military,” Smith said. “It guarantees they can never get in disrepair again.”

“The results speak for themselves, with new and renovated brands that offer service members and their families the lodging experience they both deserve and desire, and at a cost that is less than the government per diem,” Rhonda Hayes, chief, Capital Ventures Directorate of the Office of the Assistant Secretary of the Army, Installations, Energy & Environment, said in a news release. “The knowledge and expertise that Lend Lease and IHG bring to the PAL program not only validates their positions as industry leaders, but also remains key to the initiative’s long-term success.”

When the PAL program is completed in 2021, there will be 76 IHG-branded hotels with about 11,600 rooms in the U.S. and Puerto Rico at military bases. IHG notes that it already employs nearly 1,800 people at its on-post hotels.

“As a leading employer, we have the ability to create economic opportunity for people in the communities where we operate,” Arthur Holst, vice president, Operations-IHG Army Hotels, noted in the news release.