Deal Helps Keep Base From Closing

An airbase with no runways may be the perfect takeoff spot for an unusual public-private real estate development.

One key reason that Los Angeles Air Force Base avoided being included on the Pentagon’s proposed base closure list released last month was the complex deal that is bringing new offices for the military and homes for the South Bay.

In this unusual land swap, developers are putting the finishing touches on a $115-million office complex and day-care center at the El Segundo military facility; in exchange, the developers get 59 acres of base land and other parcels on which more than 900 condominiums will eventually be built.

“This is the first and only deal of its kind,” said El Segundo Mayor Kelly McDowell. “It really is unprecedented.”

The 520,000-square-foot office complex will replace aging base facilities that are not considered sufficiently safe to withstand a major earthquake. When the offices are completed at the end of the year by partners Catellus Development Corp., Kearney Real Estate Co. and Morgan Stanley, the Air Force will move its Space and Missile Systems Center to the new facility.

The original base offices, built in the 1950s, will be razed to make way for condos that are expected to fetch $400,000 to $700,000 apiece.

The project is financially complex, but the land swap was simplified by the base’s layout.

It has no runways or hangars -- just office buildings for about 4,500 military and civilian workers who administer about $60 billion in defense contracts annually. The Space and Missile Systems Center, the base’s major unit, develops space-based radar and communication systems for national security and military use, as well as intercontinental ballistic missile systems.

Keeping the base open is also a plus for the condo project, providing a lure for buyers looking for residences nearby. Catellus and Kearney have sold 13 acres from the land swap to Centex Homes, which is building the first of 280 condos scheduled to open later this year.

The airbase had long been considered one of the state’s military sites most vulnerable to closure. Operations could have been shifted to Colorado Springs, Colo. Local supporters argued that such a move would probably strip the program of most of its experienced civilian scientists because they would be reluctant to leave Southern California.

The base narrowly avoided closure during a round of cuts in 1995, and the next year a survey found that it fell short of seismic safety standards. Keeping the buildings cool and operating properly was also a headache.

“They are supposed to be concentrating on rocket science, not fixing air conditioners,” McDowell said.

The plan to trade surplus land for new offices was devised by former base commander Lt. Gen. Eugene Tattini and former Rep. Steven Kuykendall. Government regulations didn’t allow such a swap, so Kuykendall, an ex-Marine and member of the Armed Services Committee, wrote special legislation that passed in 2001.

“You had an Air Force base with four pieces of property ... in three different sites, and what they needed was one property with a half a million square feet of office space that met today’s [earthquake] standards,” Kuykendall said.

Six developers submitted proposals to construct offices and a day-care center on 52 acres of government property along Aviation Boulevard. In exchange, the developers would get the existing 42-acre base, 13 acres a few blocks south in Hawthorne and a 3.7-acre site in Sun Valley that once was home to the Armed Forces Radio and Television Service’s broadcast center.

The winning development team was a partnership led by Century City-based Kearny and Catellus, a San Francisco real estate investment trust. Last week, Catellus agreed to be acquired by ProLogis in a $3.6-billion deal.

Catellus rarely works with partners, but Jeff Dritley, Kearney’s managing partner, suggested the two companies team up. Even though Catellus owns and operates 40.6 million square feet of commercial real estate, it wouldn’t have done the project alone, said Charlie McPhee, executive vice president.

“This is so big and so complicated,” Dritley said. “To have a partner to share the risk and divide the tasks with was critical to our success.”

Both companies have built large projects. Among Kearny’s developments are the $56-million transformation of a former Xerox office facility in Pasadena into a corporate park and the $150-million mixed-use Grand Avenue Corporate Center in El Segundo. Catellus’ projects include a 588-acre former Kaiser steel mill in San Bernardino County and development around Union Station in downtown Los Angeles.

The land the development team receives in exchange for building the new facilities will be sold to condo developers for about $80 million, Dritley said. In addition, the city of Hawthorne and Los Angeles County pledged to give the developers $25 million collected from future property taxes on the new condos. And the Air Force will pay $10 million in rent before taking ownership of the new office site, he said.

Dritley estimated that the partnership would realize a profit of about 10% on the deal.

“It is possible for the military to be a very good steward of its assets,” Kuykendall said. “The rest of the government ought to look at doing something like it.”