Celebrating Two Decades of MHPI

Industry experts explain how the privatization of military housing has transformed this niche market.

This year marks the 20th anniversary of a seminal event in the histories of both the American military and the multifamily industry. In 1996, an act of Congress led to the privatization of military housing, and the birth of the Military Housing Privatization Initiative (MHPI). In the years since, much of the housing stock has been modernized through construction of new units and renovation of older ones.

This effort has helped equip military-base communities with many of the same advantages as privately developed, new-home communities, including pedestrian friendliness, sustainable initiatives, popular home features and finishes, crowd-pleasing resident amenities and community-building events and activities.
But the work is not done. Given the 50-year ground leases the military’s private-sector partners signed with the Department of Defense (DoD), the communities willl need to evolve right along with the military.

According to Ronald J. Hansen, president of Marlton, N.J.-based Michaels Management Services, the military division of The Michaels Organization, much of the new housing needed to be built under MHPI has been completed. “The program’s goal was to replace obsolete and outdated housing,” Hansen said. “The intent of the Department of Defense was to correct the housing situation for service members and bring the housing up to modern standards, as quickly as possible and with as little investment as possible.”

As part of the initiative, the U.S. military transferred its existing housing to private operators, which took control of ownership, collected rents and developed new housing or renovated old units. Most private companies leveraged the cash flow from existing housing to obtain debt used to build new housing or renovate existing units. At the same time, the private firms brought in proactive, family-friendly property management to existing communities, Hansen said.

Under the typical 50-year ground lease, the military owns the land, but leases it to private firms, he reported. Private firms build and operate the houses on that land for 50 years. “It’s a standard lease, where the housing can be returned to the service or [torn down], depending on needs and the conditions of the housing,” Hansen said.
“If we’re doing our jobs, and the communities are being maintained well and continue to be great places in which to live, there is no reason for the leases not to be extended” after 50 years, he added. About 200,000 privatized housing units were part of MHPI, Hansen said, and he believes approximately 80 percent of those units were built new under the program.

Qualities sought
Another leading private company participating in the MHPI is Nashville, Tenn.-based Lendlease, which oversees the largest MHPI portfolio and has the biggest share of privatized housing within the U.S. military. The company’s inventory stands at 40,000 homes, with 1,000 new homes currently in the pipeline.

COO Phillip Carpenter reports it took a full 10 to 12 years after the 1996 privatization authorization for the DoD to finish privatizing its housing. At a minimum, he said, the DoD sought from private companies “private sector knowledge with strength in finance, master-planned communities, property management and construction expertise.”

These qualities were necessary to partner in modernizing the military’s stock of housing that generally was too small, had too little storage and often didn’t even include air conditioning, bringing it up to par with private-sector housing, he said.
Hansen reports that in the 1998 to 2009 period, the DoD undertook many projects each year, and chose pre-qualified, private-sector companies on a project-by-project basis.

“At the end of that period, there were five or six companies that had done many of the housing projects under this program,” he said. “The Department of Defense knew them well. It was just a question of what they could offer. Later in the process, there were some newcomers that came in and made attractive bids. In some cases, they were local, new, and ended up winning and doing the projects . . . Sixty to eighty percent of each housing project was performed by local and/or small businesses. Those in areas where the building is being done can be more competitively priced than those coming in and staying in hotels.”

Location-specific housing types, sizes

Randolph Pointe, N.C., Corvias Military Living
Randolph Pointe, Fort Bragg, N.C., Corvias Military Living

Each military installation across the country has different demographics and needs, and these dictate the scope of development, said Amanda Filipowski, marketing communications director for East Greenwich, Conn.-based Corvias Military Living, another leading private-sector partner participating in MHPI.

“Whether we are building houses or apartments, the one thing all residents have in common is they are looking for modern, energy-efficient homes,” she added.
America’s service families tend to have children, pets, and the same kinds of housing needs and desires as non-service families, Hansen said. That means distinguishing between military and non-military housing might be difficult.

“The typical unit includes three or four bedrooms, has a nice kitchen, multiple bathrooms, is energy efficient, has a nice fenced-in backyard and/or deck and usually has a one- or two-car garage,” he said, estimating about 20 percent are single-family homes, and the remainder are duplex, four-plex or greater.

The nature of the housing often depends on geographic location. In Arizona, for instance, most military housing is single-family, whereas in Kansas, duplexes dominate. On the East Coast, greater numbers of four-and six-plexes are seen, due to the region’s density and the cost of construction, Hansen noted.

“That is on a military base, the largest gated community imaginable, a safe place with people like you, schools, stores and medical facilities. A military base for all practical purposes is a very nice place to live in a rural setting,” he said.

Lincoln Military Housing
Lincoln Military Housing

Annapolis, Md.-based Lincoln Military Housing, a company established in 2000 in response to the 1996 MHPI legislation, owns and operates about 32,000 units nationwide, approximately two-thirds of which are on the West Coast. The company’s first military housing was high-density duplexes, Newport Beach-based Vice President of Construction Services Kevin Clarke, said. In later years, Lincoln Military Housing began developing greater numbers of duplexes for enlisted personnel, and single-family homes for junior officers and higher. “The families wanted a yard and a feeling of a less dense community,” Clarke said.

Single-family homes and duplexes feature three or four bedrooms, two to two-and-a-half bathrooms and range from 1,600 to 2,200 square feet in size. Single-family homes tend to be 20 to 25 percent larger than the duplexes, he added.
“As you get into the higher ranks, you get into larger homes and slightly upgraded finishes,” Clarke noted. “Those ranks are generally kept contiguous to one another; You will not have a junior officer living in the same community with an enlisted individual.”

Amenities aplenty

Playground at a Lincoln property
Playground at a Lincoln property

Amenities that greet military families rival those of private-sector communities. Corvias reports a recent survey found the top-five amenities among families are pools, playgrounds, fitness rooms, community centers and walking trails. In smaller communities of perhaps 200 units, Lincoln Military Housing builds 4,000- to 5,000-square-foot clubhouses with pools and party rooms. For areas with 600 or more units, the company builds community centers with large pools, kitchens, game rooms, conference rooms and fitness centers. Lincoln also places its district property management offices in these larger centers to allow military families to easily access staff with questions or needs, or to sign leases.

“This housing is for families, so we incorporate into our designs a lot of tot lots. Dog parks are also a big deal, and [we] often include dog washing stations. Another big thing is storage, and you’ll likely see more storage in these homes in the garage, or within the floor plan itself,” Clarke said. “The reason is [military personnel] are moving so often and carry stuff with them wherever they go. Here, you’ll see winter stuff that can’t be used in Southern California in boxes.”

Amenities aren’t limited to physical structures and elements. Lincoln, like other MHPI partners, also offers programs that support spouses and kids while servicemen or women are deployed. “That’s part of our mission,” Clarke said. “We do events like carnivals, fishing derbies, and also some support groups, classes and events where mom can take her child to daycare and get together with other wives. For those not deployed, we will do date nights, father-daughter dances and family movie nights.”

Lincoln Military Housing doesn’t develop housing for single military personnel, but Michaels Military does. While the housing itself doesn’t differ by marital status, amenities do. In areas for unattached personnel, amenities might include fitness centers, swimming pools and storage. Amenities in family housing, by contrast, would slant toward playgrounds, community centers, larger pools, “spraygrounds” and dog parks. “In family housing, you would cater to a range of ages; for the unaccompanied, [it would be] ages 20 and above,” Hansen said.

Expectations differ with single service members, at least in order of importance, said Angela Marcum, Corvias regional public affairs manager. “When we conducted focus groups for single service members, the most important amenities included Wi-Fi, Internet and fitness-related amenities,” she said.

In apartment communities developed by Corvias, the focus is on gyms, Cross Fit activities and outdoor amenities like grills and fire pits. “For each project, we take community and service member feedback into account to meet the needs of our residents,” said Brandon Masters, Corvias’ regional public affairs manager.

Sustainability built in
How important is sustainability in military housing? So important it was built into MPHI from the outset, Hansen said. As entities with operational responsibilities and 50-year leases, the private companies pursued efficiencies through features like energy-saving lighting, Energy Star appliances, increased insulation and recyclable products before the term “sustainability” was in vogue.

“We wanted it to perform well because we’re paying the utility costs,” Hansen said. “Nowadays, sustainability is more an environmental thing, but at that time it was about cost savings and energy savings . . . Initially, we pushed the military—and now they’re pushing back—to become energy independent. For instance, the U.S. Army is now a leader in use of solar panels, in my opinion.”

Corvias Military Living
Corvias Military Living

In support of the DoD Privatized Housing Solar Challenge initiative, Corvias is installing nearly 100 megawatts of solar power as part of a portfolio-wide initiative to install solar at partner military installations. “The effort will provide our military housing projects rate stabilization resulting in utility savings reinvested into project scope, and increased energy security, while eliminating approximately 92,000 tons of carbon emissions each year,” Filipowski said. Lincoln Military Housing builds all of its communities’ common areas, including community centers, to LEED Silver certification. The company is in the process of installing photovoltaic panels on homes serviced by third-party electric providers, like San Diego Gas & Electric or Southern California Edison.

A major initiative in the Golden State is water conservation. Lincoln is renovating many landscape areas to incorporate drought-tolerant landscaping and efficient irrigation systems. It is also increasingly involved in low-impact development (LID), using devices like bio swales and on-site retention to maintain water quality and make sure run-off is clear and clean, Clarke said.

As part of the MHPI legislation, the military services lodging program was also authorized for privatization. Lendlease privatized the entire lodging program of the U.S. Army, and developed more than 14,000 hotel rooms at 41 locations across the country, Carpenter said. The company hired Intercontinental Hotels Group as its operator, and many of the hotels have been branded as Holiday Inn Express, Candlewood Suites and Staybridge Suites, he added.

What’s ahead?
With much of the new construction done, private-sector companies involved in MHPI are examining their communities and how they will evolve. “The DoD has a discussion ongoing about its future shape and each of these communities has to evolve to be viable for a changing DoD,” Hansen said.

“In other words, to continue to do the good job we’re doing will require adjustments. The houses will get older and may require replacement and upkeep. At the same time, the number of people the military needs to live in that base may need to change. This program needed an element of trust and the ability to work together. It took a while to get used to the idea ‘we’re your partner, not your contractor.’ Going on 20 years, everyone kind of gets it.”

While most of the development in what is called the Initial Development Period (IDP) has been completed, Clarke said, “That’s not to say we’re through building. We’re about to kick off 200 new units in Camp Pendleton, which are duplex units.”
“We have long-term projects, short-term projects, and then complete revitalization, which is tearing down and building new. It depends on what the units really need, and we’re constantly monitoring those needs,” he added

The private companies must continue to provide very high levels of service to maintain and improve the units, Clarke believes. “In this space, we may see some consolidation of providers,” he adds. “Some of the providers may have come in interested in new construction and not so much in operations, and may decide to move on. In that case, a company like Lincoln may step in. That’s where the growth is: in consolidation and acquiring existing deals.”