BusinessTN

America’s military brass are under greater pressure than ever to recruit and retain fighting men and women, and to boost morale. One way to do it is to ensure that a soldier’s family has access to affordable, quality on-base housing—not the antiquated housing that has long plagued the U.S. armed forces.

In the mid-1990s, the Department of Defense (DoD) determined that by employing traditional military methods it would take decades and tens of billions of dollars to bring its 300,000 housing units up to snuff. As an alternative, Congress in 1996 authorized the DoD to privatize all aspects of military housing.

A major paradigm shift, privatization did not exactly take off in the early years. Today, though, business is booming. And one of the largest private sector real estate developers in the military housing construction, renovation and management niche is now based in Nashville.

Without fanfare, Actus Lend Lease, a mainland subsidiary of a massive Australian real estate company, relocated its national headquarters from Napa, Calif., to Nashville early in 2005. At press time, the company was working with the Nashville Area Chamber of Commerce on a late summer media campaign to finally draw attention to the significance of its Music City presence.

From its Palmer Plaza headquarters in midtown, where it leases three floors and employs roughly 70 mostly high-paid, highly skilled workers, the company runs around one-fifth of all DoD privatized housing contracts nationwide. In all, Actus currently has six projects involving over 24,000 homes. That includes the DoD’s largest contract, an approximately $2.2 billion project in Hawaii. Closer to home, Actus is building, renovating and currently leasing over 4,000 homes at nearby Ft. Campbell. That project is slated for completion in 2009. The first residents of the refurbished neighborhoods moved in last month.

Here’s how it works. Under the privatization act, companies like Actus compete to develop, build and manage the military properties. The DoD generally doesn’t contribute any money toward projects. It does provide the land for free through a long-term lease. Actus then collects rent directly out of each soldiers’ non-taxable monthly housing allowance for a 50-year term.

Privatization agreements like the one at Ft. Campbell have many benefits, says Actus senior vice president of development Chris Sherwood. The most obvious is that private partners know how to build residential developments and finance them better than the military. That’s good news for taxpayers, who are saving between 10% and 15% of total costs. Next, companies like Actus pass down 60% of the subcontracting work to local businesses, a boon to small contractors in Middle Tennessee, Southern Kentucky and elsewhere around the United States. From the military’s perspective, not only can it focus on its core competency—fighting wars—but better housing improves recruitment, retention and morale and ends the problem of neglected housing. After construction, the private sector management of these houses means they will receive the major improvements they need every decade or so.

“This type of development just has a more noble purpose,” Sherwood says. “Look at who you are helping. It’s soldiers spending a lot of time overseas who are worried about their families.”

As a result of privatization, military housing stock will be fully reclaimed. And it will come sooner rather than later. What then for Actus? Sherwood predicts the next great wave of privatization could involve the renovation and construction of all American military barracks, something England is in the process of completing under Lend Lease’s management.