Military Construction Cuts for Border Wall Could Affect Major Defense Hubs

Military Construction Cuts for Border Wall Could Affect Major Defense Hubs

San Diego Projects on Global Candidate List, As Trump Looks to Fund Border Wall

BY LOU HIRSH (via CoStar)

U.S. Border Patrol agents at Border Field State Park in San Diego's Imperial Beach are reinforcing a border fence with wire. Photo: Mani Albrecht, U.S. Customs and Border Protection

U.S. Border Patrol agents at Border Field State Park in San Diego’s Imperial Beach are reinforcing a border fence with wire. Photo: Mani Albrecht, U.S. Customs and Border Protection

The Pentagon is considering which planned military base construction projects to cut after authorizing the transfer of $1 billion to fund President Donald Trump’s proposed wall at the U.S.-Mexico border, a move that could effect real estate in places like San Diego, which is among the world’s largest U.S. military hubs.

The U.S. Defense Department released a 20-page list of military construction projects that could potentially be stopped following Trump’s declaration of a national emergency at the border last month, a move that enables him to divert unawarded military construction funds to national security projects.

The White House wants $3.6 billion diverted to border wall projects, and the military is in the process of choosing from among projects as varied as a naval airplane maintenance hangar in Havelock, North Carolina, and a drydock waterfront facility in Hawaii’s Pearl Harbor valued at a total of about $12.9 billion worldwide. That includes $1 billion authorized Monday in California, and about $600 million of that is in San Diego, which has the largest U.S. contingent of active military personnel and ranked second only to Fairfax, Virginia, for 2017 defense procurement contracts, according to the San Diego Regional Economic Development Corp.

The projects, which do not include any military housing and barracks, had been identified for future spending but have not had actual contracts awarded. Some have been in planning going back as far as 2015.

In San Diego, for instance, cuts could impact $170 million in projects that are connected to a larger $700 million campus being planned for the U.S. Navy SEALs, near the South Bay city of Coronado. The SEALs have long trained in facilities on the island of Coronado, home to two large Navy bases, and previously announced plans call for a new SEAL campus with 24 buildings to be constructed over a 10-year period; site preparation is underway on the 600-acre project.

Other projects impacted could include support systems improvements – such as hangars, landing pads, water systems and pier upgrades – at San Diego’s Naval Air Station North Island, Marine Corps Air Station Miramar and Naval Base San Diego, as well as North County’s Marine Corps Base Camp Pendleton.

All of these could have effects that reach further into the community.

“You probably wouldn’t have layoffs, but you might have costs in terms of lost opportunities,” said Mark Balmert, executive director of the San Diego Military Advisory Council, which conducts research with regional academic and economic development agencies. “There could be a case where a construction company was going to hire extra workers but might not if a certain project isn’t going to happen.”

That could matter in an area like San Diego, where defense industry’s local economic impact is more than twice the size of travel and entertainment, another major regional driver. The advisory council reported that the U.S. military accounted for $26 billion in direct spending in San Diego County in 2018, supporting 340,000 jobs and $50 billion in gross regional product. The area is home to the world’s largest concentration of military personnel – 143,000 active duty personnel, with an expected increase of 15,000 over the next few years.

Redevelopment Effects

Ron Miller, a tenant-focused senior vice president in the San Diego office of brokerage firm Colliers International, said there are too many unknowns to gauge specific impacts from military base construction cuts yet. But he said one potential real estate factor to watch is whether the situation impacts the Navy’s planning for a redevelopment of its large but aging technology research complex known as the Space and Naval Warfare Systems Command.

The Navy is in talks with city planners, and in late 2018 invited developers to submit informal concepts to redevelop its 62-acre site off Interstate 5 near San Diego International Airport.

The Navy has not released submissions that were made through mid-January, and is expected to issue a request for formal proposals later this year. Generally, the Navy is aiming for a public-private partnership in which private entities would develop new buildings that SPAWAR needs on about 20 acres; and in exchange, the remaining 40-plus acres would be available for commercial elements.

That site, which served as an aircraft factory during World II, is also being eyed by the city for a possible regional transit hub, as part of efforts to give travelers better direct access to the airport.

Generally, the military footprint expansion over the decades has tended to attract businesses to locate near those projects, especially smaller subcontractors that wish to work in the future with the military by locating near military-related offices, Miller added.

Rather than on military bases, Miller noted that most San Diego real estate activity currently generated by the Pentagon takes place at the facilities of large private contractors – like Northrop Grumman and General Atomics – which continue to lease up large swaths of office and industrial space in places like the Interstate 15 corridor.

Since 2015, local brokers have noted, cybersecurity, aerospace and defense companies have been major economic drivers for San Diego County , signing leases for more than 1.5 million square feet of office space. Brokerage firm Jones Lang LaSalle reported that the largest move-ins of 2018 included those by defense and aerospace companies like ViaSat Inc., which took 180,000 square feet in Carlsbad; General Atomics, which leased 145,000 square feet in Rancho Bernardo; and Trellisware Technologies Inc., which agreed to 72,000 square feet in Scripps Ranch.

Still, even if construction projects slow around San Diego’s military bases, it doesn’t represent the majority of the activity brought by the industry in the area.

Military Construction

report last year from the San Diego Regional Economic Development Corp. noted that construction represented just 10 percent of the $9.2 billion in defense contracts awarded locally in 2017.

Observers note that the overall U.S. defense budget shows no immediate signs of being cut in manufacturing areas like weapons, aerospace, communications and security, which represent nearly 70 percent of Pentagon spending in San Diego.

The military advisory council’s Balmert, who is a retired Navy rear admiral, said the San Diego region could be spared major base project costs, in part because the Pentagon retains a Pacific-focused strategy in terms of building up personnel, especially as it confronts future challenges that that might arise in Asia.

Even Miller noted he would be surprised to see funding get the ax for a project like the Navy SEAL campus, given its size and the long standing of San Diego as a key Navy administrative hub and the central training area for the elite SEALs.

“It’s probably not going to impact a project that’s already underway, or something affecting a high-profile group like the SEALs,” Miller speculated. “If (the Defense Department) decided not to fund a project, it might be something more low-profile or something that hasn’t even been covered in the media.”

Balmert said local military-related construction has generally remained strong in San Diego for the past decade no matter the state of the overall commercial development economy.

But Balmert said there are multiple other national factors, including congressional district politics, that could affect what military base projects get cut to help pay for the border wall. There are also other projects that might require additional funding.

For instance, the Defense Department is still in the process of re-allocating funding to repair major damage done last year by Hurricane Florence to Marine Corps Base Camp Lejeune in North Carolina. The Marine Corps has estimated that costs to repair facilities at Camp Lejeune could be as high as $3.6 billion.