Much as many colleges and universities privatized student housing after recognizing they lacked the expertise to build and operate such facilities at a high level, the United States military came to the same conclusion. Tens of thousands of military housing units are built, operated and maintained by private real estate interests.
One of the private real estate operators assisting the military in housing its personnel is Lendlease Communities. Phillip Carpenter is the company’s COO.
Why did military housing become privatized?
Privatized military housing, officially known as the Military Housing Privatization Initiative (MHPI), was introduced by Congress in 1996 with the aim of improving housing facilities for military service members and their families. Prior to the MHPI, housing was owned and operated by the Department of Defense and the separate military branches. All services were having difficulty recruiting and retaining their volunteers due to poor housing conditions. The housing backlog for improving the inventory was in the billions and Congress could not appropriate enough funding to meet the need. Owning, developing and managing real estate assets was not the Department of Defense’s area of expertise, so real estate companies established long-term partnerships with the military to privatize, bring in private debt to operate and improve housing. This resulted in the creation of communities where military service members and their families could live and work. Through the MHPI, Lendlease Communities alone owns and operates more than 40,000 residential units across a national portfolio.
What percentage of military housing is privately developed and operated, and where is this housing typically located?
According to the U.S. Government Accountability Office, 99 percent of homes at U.S. military installations are owned and operated by private-sector companies. Lendlease Communities operates its housing assets in partnership with a property manager, WinnResidential Military Housing Services. Privatized military housing is typically located “insides the gates,” as we say. This means the homes are located on the military installation, providing military service members with easy and secure access to both their home, family and work.
What are some of the unique requirements in the construction and operation of military housing?
Privatized military housing is unique because Lendlease has a 50-year commitment with the military and the government to own, manage and improve our homes and communities. The 50-year term was necessary to obtain the private debt. We are a long-term partner, and we collaborate with the Department of Defense and the military departments daily to ensure that we are exceeding housing standards. Connecting with our residents/partners and improving our assets is one of the company’s core competencies, and we focus on providing military service members and their families with the best homes, services and communities possible.
What kind of returns are possible or typical?
Each project has a reinvestment account to provide further development after the initial development period. Funding left over from the day-to-day operations flows into this account for further development. Lendlease has leveraged those cash flows to borrow an additional $1.1 billion in capital, which allows our Army portfolio of 26,000 homes to accelerate our out-year development program.
Is this a growth area in terms of number of units and square footage?
Yes, there is a continued need for more military housing. In the past five years Lendlease has and continues to invest more than $1.8 billion in reinvestment account funding. With these funds, we renovated more than 2,280 homes and made headway in preparing to build more than 1,200 new homes.