MHPI-BAH and Profitability:

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Roderick Herbert Greene
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2 MHPI-BAH and Profitability: The Fourth Decade and Beyond Friday, June 23, :00 am 10:00 am Breakout Sessions Sponsored by

Meet the Experts Scott Chamberlain Chief of the Capital

in the Office of the Deputy Assistant Secretary of the Army

Chief of the Portfolio Management Division for the Air Force

Acquisition (SVA) at Naval Facilities Engineering Command

3 Meet the Experts Scott Chamberlain Chief of the Capital Ventures Directorate (CVD) and Special Assistant for Housing in the Office of the Deputy Assistant Secretary of the Army for Installations, Housing and Partnerships COL Michael Beach Chief of the Portfolio Management Division for the Air Force Civil Engineer Center Robert Harris Director Special Venture Acquisition (SVA) at Naval Facilities Engineering Command Douglas Jones Executive VP, WinnResidential Military Housing Services Moderator

4 Why MHPI? Status of DoD-Owned Housing 1996 > 70% / 180,000 Units Deemed Inadequate Typical MILCON Approach: $25 Billion 30 Years Housing is Not a Core Competency of Military Services or DoD

5 The Vision Military Housing Privatization Initiatives (MHPI) Passed in 1996 Improve Quality of Life for Service Members & Families Attract Private Sector Expertise, Financing & Innovation Address Poor Condition of DoD-Owned Housing & Shortage of Affordable, Quality Private Housing Financial & Physical Sustainability

6 Expectations Privatize >75% of DoD Housing Inventory Minimum 3:1 Leverage of Private Funds to Government Contribution Reduce Housing Deficit Across All Projects & Services Meet / Exceed Private Market Standards: Product Service Financial & Physical Sustainability

7 The Reality Army Residential Communities Initiative (RCI) & Privatization of Army Lodging (PAL) Locations JB Lewis-McChord Camp Parks Dugway PG Moffett FAF NPS Presidio of Monterey Ft Hunter Liggett Ft Irwin Ft Wainwright, AK Ft Greely, AK Ft Shafter, HI Schofield Brks, HI Yuma PG Ft Huachuca Ft Drum Ft McCoy West Point Ft Hamilton Picatinny Ars Carlisle Brks Ft Myer Ft Detrick APG Ft Leavenworth Walter Reed Ft Belvoir Ft Riley Ft Leonard Wood Ft Lee Ft Meade Ft Carson Ft Knox Ft Eustis Ft Campbell Ft Bragg Ft Story Ft Sill Redstone Arsenal Ft Jackson Ft Benning White Sands MR Ft Gordon Ft Bliss Ft Hood Ft Rucker Ft Stewart Hunter AAF Ft Polk JBSA - Ft Sam Houston Ft Buchanan, PR

The Reality - Army RCI includes 34 projects encompassing 44 installations with over 86,000 homes.

They are structured as public-private partnerships between the Army and a development partner.

member of the Project Companies, the Army has approval rights on specific strategic and operational decisions (Major Decisions) and monitors and oversees its investments As the

8 The Reality - Army RCI includes 34 projects encompassing 44 installations with over 86,000 homes. In addition, the RCI Program has 5 unaccompanied housing projects with 2,408 bedrooms. They are structured as public-private partnerships between the Army and a development partner. Army out leases land for 50 years with 25-year option and transfers title of housing and improvements to RCI Project Companies Army operates in two distinct roles under RCI As a member of the Project Companies, the Army has approval rights on specific strategic and operational decisions (Major Decisions) and monitors and oversees its investments As the Lessor under the Ground Lease, the Army is the Project Company s landlord As of March 2017, over 35,000 new homes and over 36,000 renovations have been delivered in the family housing portfolio. Initial development is complete at all but one project. HQDA RCI Resident Survey continues to show improvement with the overall portfolio at 79.9 (80 rates as very good) as compared to 2015 score of The 2017 survey is currently ongoing.

9 The Reality - Army RCI SUCCESSES / STRENGTHS / STATUS Multiple Means of Influence (Authority and Decision Making Structures) Ability to Renovate & Construct (Flexibility and Efficiency) Improved Customer Service Satisfaction Steady Funding Stream (BAH for Rent) PAL SUCCESSES / STRENGTHS / STATUS PAL is a single project spanning 40 installations with a 12,403 room end-state $1B+ of recapitalization on-going with 5,133 branded hotel rooms delivered to-date Army is only Service to maximize use of MHPI, utilizing it for transient lodging (noncore function) No government cash equity contributions, no GDLs, no loan or occupancy guarantees True cost of lodging is known (no APF support) All costs are borne by the room rate Official traveler rates capped at 75% weighted average of lodging per diem ($83M/yr avoidance 43 cents of every dollar spent at a PAL hotel supports redevelopment or sustainment

10 The Reality - Army Yuma Proving Ground Before & After

11 The Reality - Navy DoN Family Housing PPV 42 project phases executed End-state of ~62,000 homes MILCON equivalent development ~ $9.8B DoN cash investment ~ $1.5B 6.5:1 leverage Navy Unaccompanied Housing PPV 2 projects executed End-state of 6,080 beds MILCON equivalent development ~ $594.1M DoN cash investment ~ $79.7M 7.5:1 leverage Resident Satisfaction Baseline Score PPV 2012 PPV 2013 PPV 2014 PPV 2015 PPV 2016 Program Achievements Privatized entire DoN portfolio where feasible Improved resident housing satisfaction Implemented Resident Energy Conservation Program (RECP) reducing energy consumption Provided PPV housing renewable energy potential as efficiency driver Removed DoN from non-core function 0.0 Overall Service Property Range RSS-Legend Rating Outstanding Very Good Good Average Below Average Poor Very Poor 0-54 Crisis

12 The Reality Navy Before Privatization

13 The Reality Navy After Privatization

14 The Reality - Navy New Project Phases

15 The Reality - Navy Sustainable Development

The Reality - Navy Net Zero-Energy Homes 5 6 7 11 12 4 8 9 10 13 22 1 LEEDHomes at Midway Park The Midway Park neighborhood at Camp Lejeune is the first on a Marine Corps Installation to have

1 2 3 4 SustainableSite TheMidway Park land was previously developed which means that thenew community isnot disturbing any new land and isalso limiting the amount of new resources required by

making the neighborhood more pedestrian friendly.

Pollutant Protection Storm water isdirected tobioretention swales inlieu of stormdrains, which isreducing runoff and pollution intothelocal stormsystems.

Thetoilets have twodifferent settings, ahalf flushfor liquid removal and afull flushfor solid removal.

16 The Reality - Navy Net Zero-Energy Homes LEEDHomes at Midway Park The Midway Park neighborhood at Camp Lejeune is the first on a Marine Corps Installation to have LEEDGold certified homes. The Midway Park LEEDhomesoffer specific featurestoallow Residentsa moresustainableliving environment SustainableSite TheMidway Park land was previously developed which means that thenew community isnot disturbing any new land and isalso limiting the amount of new resources required by reusing the existing roads and infrastructure. Thesiteiswithin ½mile of numerous community resources suchas aconvenience store, bank, post office, etc. making the neighborhood more pedestrian friendly. Water EfficiencyOutsidetheHome There isno need for irrigation systems within the Midway Park Community as drought tolerant grass and plants that donot require watering arebeing used for landscaping. Pollutant Protection Storm water isdirected tobioretention swales inlieu of stormdrains, which isreducing runoff and pollution intothelocal stormsystems. Water EfficiencyInsidetheHome All homes areequipped with dual flushtoilets and high efficiency fixtures that help save water. Thetoilets have twodifferent settings, ahalf flushfor liquid removal and afull flushfor solid removal ExistingRoads Existing road patterns are reused toeliminate deforestation and tominimize dust and noise. HVAC Systems Thehomes areextremelyenergy efficient duetothe tight building envelopecreated by advanced framing techniques and highly rated insulation. Thehome isalso healthier for residents tolive indue towell planned construction practices suchas apreoccupancy air flush, useof exhaust fans and controlling contaminants that enter thehomes. RecycledMaterials Themajority of materials during demolition of the old homes were recycled and diverted fromlandfills. Material for thenew homes suchas fiberglass insulation and carpet have recycled content. Dual PaneWindows Reducing the amount of heat infiltration, which is perfect for thesubtropical North Carolina Climate. EnergyStar Appliances Kitchen Appliances that use20%-30% less energy are installed inevery Midway Park home Lighting All homes areequipped with CFLlighting tohelp reduce heat inthehome and provide more efficient lighting. Garages Thehomes have arear entry feature allowing for private entry. Inaddition, mechanical systems and ductwork are not located inthegarage eliminating pollutants that would typically infiltrate these systems and get into standard homes. Walls Thicker insulated walls withahigher thermal value lead tobetter heating and cooling efficiency inall seasons. CarbonEmissionReduced Wemade aconscious effort topurchase as many materials as possible locally toreduce carbon emissions fromthetransportation of these materials. In addition, by creating aneighborhood pathway network, Residents will beenabled towalk more and drive less toget tothe convenience store, playgrounds or dog parks.

17 The Reality Air Force Program Evolution 1996: NDAA instituted Military Housing Privatization Initiative (MPHI) 1998: Lackland AFB, Ph I - AF s first project and first DoD project to close 2000: Cohen Initiative Zero Out of Pocket (OOP) BAH starts to rise : New program, many uncertainties; only severable areas 2002: OSD changes from HMA to HRMA methodology off-base first : Focus on awarding projects eliminating inadequate homes 2006: Delegated authorities centralized at AFCEE instead of MAJCOMs 2007: AF begins to emphasize grouping bases into projects, first was AETC : American Eagle sale of 4 projects to Hunt : Credit crisis impact and mitigation efforts 2010: Smart Scope strategies 80% of HRMA : Last projects privatized (JBER 3, Southern, Western, Northern, Continental, ACC3) 2013: First Gov t Direct Loan Workout due to mission loss AETC Group : Return to Out of Pocket (OOP) costs 1% OOP and 1% renters insurance

18 The Reality Air Force Portfolio Overview 32 projects at 63 installations with 53,240 unit end state Privatization replaced inadequate homes in 15 years; would have been 50+ years via MILCON Leveraged $619M AF investment for $8.3B total development cost (13:1 ratio) 52,217 units delivered 21,797 new; 12,392 renovated; 18,028 as-is

19 The Reality Air Force End-state units and number of projects closed by year Cumulative End-state Units 1,072 1,900 3,436 4,514 6,059 12,171 17,026 31,442 37,390 37,390 37,390 40,815 44,079 53,240

20 The Reality Air Force 100% 95% 90% Occupancy Pro-Forma Occupancy (Occupied / Pro-Forma Available) 96.3% 96.4% 96.3% 96.7% 96.4% 96.5% 94.2% 94.7% 94.9% 95.0% 94.8% 95.1% 95.3% 93.5% 93.7% 94.0% 94.1% 94.0% 94.1% 94.2% 94.2% 94.2% 94.2% 94.2% 94.2% 94.0% 85% 80% 75% 87.8% 87.5% 84.8% 84.4% 83.9% 84.2% 82.5% 83.9% 83.4% 83.1% 81.5% 81.0% 82.0% 70% Military Families/Pro Forma Available OETs/Pro Forma Available Pro Forma Occupancy Rate (Target)

21 The Reality Air Force Resident Satisfaction Annual Portfolio Average 95 Survey Score Outstanding Very Good Good Average Property Satisfaction is driving Very Good Resident Satisfaction

22 Share Your Thoughts on this Session How are we doing?

23 Session/Speaker Survey

24 The Next 10 Years The Road Ahead Air Force Portfolio Big Rocks Long-term sustainment of projects Financial stress test Project restructures BAH alignment with market Customer service Reinvigorating education & training Installation commander briefs MAJCOM commander briefs Housing Management Offices PO property management staff Annual Site Visits General Officer Quarters (GOQs) Financial stress of large / Historic GOQs

25 The Next 10 Years The Road Ahead Navy Sustainment of the Navy Portfolio Respond to Force Requirements New Privatization Opportunities

26 The Next 10 Years The Road Ahead Army Challenges / Risks Troop Reductions Basic Allowance for Housing (BAH) Reduction Myths & Mis-Information Tenant Waterfall (Civilians) Perceived Inability to Influence RCI Private Partners Out of Pocket Costs Understanding of Project Structure Different Rents for the Same House

27 The Next 10 Years The Road Ahead Army Continued Way Ahead Partnership Engagement on Future Needs Analysis by Project Continued Engagement with Senior Army and OSD leaders on Impact of Out-of-pocket Initiative on Project Long-term Viability - Brief Congress on Impact/results Strategic Communication Across Army Educate and Dispel Myths & Misinformation

28 Contact Info Scott Chamberlain COL Michael Beach Robert Harris Douglas Jones mil

BAH Analysis: Impact to RCI

BAH Analysis: Impact to RCI 12 August 2015 1 BAH Facts and RCI Impacts BAH is intended to cover median market rents and average local utilities expenditures by location and grade, reduced by the national