Department of Defense Outleasing and Enhanced Use Leases

Department of Defense Outleasing and Enhanced Use Leases

September 13, 2019
Department of Defense Outleasing and Enhanced Use Leases
Pursuant to 10 U.S.C. §2667, the Secretary of Defense and
DOD views EULs as a useful contracting tool that can help
the Secretaries of the Military Departments are authorized
manage deteriorating and underused facilities (i.e., facilities
to lease-out (otherwise outlease) department-owned non-
that are vacant or partially vacant) and undeveloped land
excess real or personal property (commonly called outlease
that a department does not seek to label excess, but also
authority). According to 40 U.S.C. §102(3), excess property
lacks the funding to improve or modernize. Thus, DOD has
is defined as “property under the control of a federal agency
continued to use EULs for underutilized real property, to be
that the head of the agency determines is not required to
able to repair and maintain existing facilities, or to construct
meet the agency’s needs or responsibilities.” DOD’s
new facilities that promote the national defense or are in the
outlease authority applies only to non-excess property,
public interest. Payments received from outleasing are
meaning that to some degree it meets a DOD need, and is
placed in a special account in the Treasury, where at least
not in a disposal process where it would be removed from
50% of the proceeds are made available to the originating
DOD’s inventory. Other requirements are that the property
military installation or defense agency location.
must not for the time be needed for public use, and that it
Congressional Involvement
must be under the control of the Secretary concerned.
Congress participates in the approval process for EULs and
DOD exercises its outlease authority for real property
has oversight responsibilities to try to ensure DOD is
generally through two types of contracts: short-term cash
adhering to its statutory requirements, such as those set
consideration leases (five years or less) for activities such
forth in 10 U.S.C. §2667 (see GAO-11-574). Members of
as farming or grazing, or more complex ground leases
Congress may also play a role in the development of EULs
called Enhanced Use Leases (EULs), which typically have
by helping identify developers, facilitating government
longer leasing periods (e.g., 5–55 years) and may include
communications, and encouraging and promoting projects.
unique development terms that can benefit military
DOD Management of EULs
installations. DOD’s outlease authority also permits the
collection of in-kind consideration in addition to, or in lieu
The Deputy Assistant Secretary of Defense (DASD) for
of, cash payments, as long as the amount is generally not
Infrastructure (INF) manages real property accountability
less than the fair market value of the lease interest.
and real estate policy in DOD, on behalf of the Secretary of
Defense. However, because outleasing authority is granted
Types of in-kind consideration named in 10 U.S.C. §2667
to each of the Service Secretaries, and pertains to both real
include:
and personal property, each Military Department is

responsible for establishing and managing leases under
“Maintenance, protection, alteration, repair, improvement,
section 2667 for property they own. EULs for DOD-owned
or restoration (incl. environmental restoration) of property
property (i.e., the Defense Agencies, DOD Field Activities,
or facilities under the control of the Secretary concerned.

and U.S. Special Operations Command) are authorized by
Construction of new facilities for the Secretary concerned.
the Secretary of Defense and managed by the Office of the
 Provision of facilities for use by the Secretary concerned.
Secretary of Defense. EULs are not governed by the
 Provision or payment of utility services for the Secretary
Federal Acquisition Regulation System.
concerned, which shall prioritize energy resilience in the
Army Management
event of commercial grid outages.

Within the Department of the Army, the Deputy Assistant
Provision of real property maintenance services for the
Secretary of the Army for Installations, Housing, and
Secretary concerned.
Partnerships (DASA-IH&P) “provides worldwide policy,
 Provision of such other services relating to activities that
programming and oversight of the Secretary of the Army's
will occur on the leased property as the Secretary
Title 10 U.S. Code responsibilities in the areas of real
concerned considers appropriate.”
estate.” The DASA-IH&P must approve leases for any real
property for more than five years, including EULs. The
An EUL is not a legally defined partnership between DOD
U.S. Army Corps of Engineers manages the Army EUL
and a selected developer, since DOD does not contribute
program and is responsible for EUL project development,
equity to a project or guarantee revenue to the developer.
execution, and management (see Army Regulation 700-90,
However, EULs may offer several benefits to each party
Army Industrial Base Process).
involved and can encourage public-private partnerships and
public-to-public partnerships through relationship building.
Air Force Management
DOD can also use an EUL to support additional federal
Within the Department of the Air Force, the Deputy
contracting authorities such as: cooperative research and
Assistant Secretary of the Air Force for Installations
development agreements (CRADAs), intergovernmental
(SAF/IEI), “provides guidance, direction, and oversight of
support agreements (IGSAs), and power purchase
matters pertaining to the shaping and strengthening of Air
agreements (PPAs).
Force installations,” and has responsibility for Air Force
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Department of Defense Outleasing and Enhanced Use Leases
real property and asset management. SAF/IEI approves real
reduction in operation and maintenance costs, and/or an
property leases, to include EULs. The Air Force Civil
improvement in community relations. Local communities
Engineer Center (AFCEC) “is responsible for the
can benefit from general economic stimulus, potential tax
optimization of Air Force non-excess assets” using tools
revenues, job creation, and further community investment
like EULs and carries out this duty through its Installations
engendered by the EUL. Yet, each EUL project does run
Directorate (AFCEC/CI). AFCEC/CI administers the Air
the risk of not seeing all benefits realized, and DOD could
Force EUL program and is responsible for EUL project
potentially receive less in consideration than expected. For
development, execution, and management (see Air Force
example, following an economic downturn development
Enhanced Use Lease (EUL) Playbook).
could slow and reduce anticipated rental revenues.
Navy and Marine Corps Management
Selected EUL Projects
Within the Department of the Navy, the Deputy Assistant
The following are selected EUL projects that demonstrate a
Secretary of the Navy for Installations and Facilities
range of outcomes in terms of generated benefits.
(DASN(I&F)) is responsible for the “use and disposal of
real property and facilities” for the Navy and Marine Corps.
The Offices at Fort Sam
The DASN(I&F) establishes and supervises policies and
In 2001, the Army signed three 50-year EULs at Fort Sam
procedures relating to the use of real property and real
Houston (now Joint Base San Antonio) to renovate three
estate contracting actions. The Naval Facilities Engineering
deteriorated and vacant buildings into new office space. As
Command administers the Navy EUL program and is
consideration, the Army would receive a share of the net
responsible for EUL project development, execution, and
rental income collected from private sector tenants and
management (see SECNAV Instruction 11011.47D).
realize maintenance cost savings. However, after 9/11 base
access became restricted and the Army’s need for space at
Establishing an EUL
the base increased. As a result, most of the consideration
Each DOD department internally determines its process for
received today is a return on a portion of the rent the Army
developing, executing, and managing EULs, but in general
pays to use the buildings (aka. “The Offices at Fort Sam”).
processes are similar (see Figure 1). The timeline for
Moanalua Shopping Center
completing an EUL (i.e., project identification to closing a
In 2004, the Navy signed a 40-year EUL to redevelop its
lease) varies, and is based on the complexity of the project,
aging property at Joint Base Pearl Harbor-Hickam into a
length of lease negotiations, and approval processes.
retail center and a new Navy administrative services center
Figure 1. EUL Processes by Military Department
constructed as in-kind consideration. Today, the Moanalua
Shopping Center consists of close to 30,000 square feet (ft2)
of commercial space for over 30 retailers, and a 55,000 ft2
Navy Administration Building, for which the service gained
$17 million in real property value and pays no rent.
Falcon Hill Aerospace Research Park
In 2008, the Air Force signed a 50-year EUL to redevelop
550 acres of underutilized property at Hill Air Force Base
into an aerospace research park that would include office
space, restaurants, retail establishments, an entrance control
facility, an access road, and two hotels. Over 2,000,000 ft2
of commercial space was to be developed in Phase 1 of the
project, infusing an estimated $500 million into Utah’s
economy. Currently, according to general contractor R&O
Construction, 268,757 ft2 of space has been developed (see
Figure 2). Current tenants include Orbital ATK, The
Source: CRS Graphics; U.S. Army Corps of Engineers; Air Force
Boeing Company, BAE Systems, and Northrop Grumman.
Civil Engineer Center; Naval Facilities Engineering Command.
Figure 2. Falcon Hill Aerospace Research Park
Throughout the process of establishing an EUL, DOD and
the Military Departments are required by 10 U.S.C. §2662
to provide certain official notifications to Congress and are
required to wait a specified number of days before taking
preferred actions.
Benefits and Risks
EULs may provide several benefits to both the public and
private sectors, including local communities. For example,
private developers can benefit from market rate returns,
long-term leases that foster government and community
relationships, and access to tenant markets previously

Source: R&O Construction
inaccessible. The government can benefit from a revival of
aging or damaged facilities, new tenants whose mission and
G. James Herrera, Analyst in U.S. Defense Readiness and
expertise are synergistic with that of the military’s mission,
Infrastructure
a new funding source for needed and unfunded projects, a
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Department of Defense Outleasing and Enhanced Use Leases

IF11309

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