PROGRAM OBJECTIVES

What is military family housing privatization?
The Military Housing Privatization Initiative (MHPI) is a public/private program whereby private sector developers may own, operate, maintain, improve and assume responsibility for military family housing, where doing so is economically advantageous and national security is not adversely affected. The MHPI was enacted on February 10, 1996, as part of the National Defense Authorization Act for fiscal year 1996. Under the MHPI authorities, the Department of Defense (DoD) can work with the private sector to revitalize military family housing by employing a variety of financial tools-including direct loans, loan guarantees, equity investments, and conveyance or leasing of property or facilities. For more information on these authorities, see MHPI Overview.

What does DoD’s “community first” policy mean?
It means that DoD looks to the private sector first to house its Service members. DoD believes the private sector can offer safe, secure and convenient housing to its military personnel and that the military personnel’s presence in the community is a positive influence. Therefore, DoD provides “on-base” privatized housing or military construction housing only when the private sector cannot provide adequate affordable housing.

What percentage of DoD military personnel live off post?
Approximately 65% of Service members live in housing in the private sector.

Why is DoD interested in privatizing military housing?
The MHPI program was created to address two significant problems concerning housing for military Service members and their families. The first problem is the poor condition of DoD owned housing. DoD currently owns approximately 166,000 family housing units on and off base. About 45% of these units need to be renovated or replaced because over the past 30 years, they have not been sufficiently maintained or modernized. The second problem is a shortage of affordable private housing of adequate quality.

This situation has led to a decline in readiness and morale among Service members. However, DoD has been unable to address the critical housing needs of its Service members and their families because of existing budgetary constraints. Using the traditional approach to military construction, it would cost taxpayers nearly $16 billion and it would take 20 years to solve this housing problem. MHPI provides a creative and effective solution to addressing the quality housing shortage. For DoD, MHPI results in the construction of more housing built to market standards, for less money than through the military construction process. Commercial construction is not only faster and less costly than military construction, but private sector funds significantly stretch and leverage DoD’s limited housing funds. At the same time, developers and financiers are interested in participating since privatization opens the military construction market to a greater number of development firms, stimulates the economy through increased building activity, and the projects can provide a continuous inflow of capital to investors over a long period of time.

To whom is the MHPI program primarily targeted?
Although it is DoD policy to rely on the private market for its housing, in many instances the junior enlisted personnel cannot afford quality private housing within a reasonable commuting distance. Therefore the MHPI program is targeted to these Service members.

Who is permitted to live in MHPI housing?
Priority to occupy the housing units is given to Service members. However, if there is not enough demand for housing from military personnel and, as a result, occupancy rates drop below a certain level, the developer can rent to other personnel, but must follow a priority list of other tenants. For example, the waterfall could be: (1) unaccompanied Service members, (2) federal civil service employees, (3) retired military, (4) guard and reserve military, (5) retired federal civil service employees, (6) DoD contractors/permanent employees and then the (6) general public.

What impact will privatization have on individual installations?
Ideally, privatization will bring about a dramatic improvement of the installations’ housing conditions for Service members and their families, and consequently, an increase in their quality of life, readiness, morale and retention. One major improvement is the quality and quantity of maintenance on the housing units. However, some inconveniences may occur throughout the transition period during which housing will have to be either renovated or constructed, Service members may have to relocate from older to improved/new housing units, and property management will be handed over to the developer. Nevertheless, this transition period is relatively short, and in most cases the transition is smooth, and its benefits will outweigh all of the costs incurred.

How much will privatization save the DoD?
In monetary terms, given that the money saved by the Government avoiding the long-term operation and maintenance costs for these housing units is offset by paying Service members their housing allowance, Government dollar savings over the long-term are estimated to be about 10% of total costs.

However, another measure used to estimate the potential benefit privatization offers over budgeting and project execution with traditional MILCON funding is leverage. DoD policy requires a minimum leverage of 3 to 1 for a privatization project to be considered. This means that a privatized project must generate a least $3 of housing development for every $1 appropriated by Congress to support the project. The leverage ratio is calculated by dividing the estimated costs for a project under MILCON by the project’s total budget score (appropriated dollars needed to support a project at the time of obligation). At the end of 2005, the MHPI program average leverage, as a whole, was over 13:1.

It is important to note, however, that the biggest advantages of privatization are not monetary, but rather the speed at which these houses can be renovated and constructed by the private sector, and the quality of the housing and housing maintenance that the residents receive almost immediately.

What is the status of the Military Housing Privatization Initiative?
As of October 2005, the Department has entered into transactions for 53 privatization projects totaling over 111,000 family housing units.

How much housing is DoD planning to privatize?
DoD currently has an inventory of 166,000 family housing units-with about 50,000 inadequate units. Its current plans are to privatize roughly 185,000 family housing units. However, there is no ceiling set on the number of units expected to be built or reconditioned under the MHPI.

What about privatizing barracks, and DoD lodging?
DoD would like to privatize barracks and lodging, but has realized that there are financial and political obstacles that need to be addressed before moving forward.

What is Congress and OMB opinion of the MHPI program?
Congress and OMB response of the program has been very positive. DoD has received positive Congressional report language over the last few years about achieving success using the private sector authorities contained in MHPI. (See Congressional language below)

MILCON Senate Appropriations Committee Report-2006 (page 8) -- Family Housing- "At a time of war when those who serve our country are called to combat, the Department and the Congress must provide the resources to support not only our military but also the military family. This is a responsibility the Committee takes very seriously because of the sacrafice that services members make when joining the military, as it impacts the lives of not only the troops but their families. After accounts of acquistion and contractor missteps throughoutthe modern history of the Department of Defense, the Committee wants to highlight one of the successes of the Federal Government: privatization of military family housing. The Committee continues to strongly believe in the importance of this program fior it provides for a quality of life not previously possible both our troops and their familiesgiven Federal budget constraints.

The Department is to be commended for utilizing the private sector in a manner that improves the daily lives of Department personnel, while maximizing limited resources, merely through innovative thinking and inventive Federal contracting. The Committee believes that this approach has provided benefits both in terms of savings and in the quality of life for our military families. The Committee encourages the Department to continue it's eforts in this arena. Therefore the Committeee has provided the necessary resources requested by the DEpartment for for family housing appropraitions for FY 2006and looks forward to th econtinuing success of the program."

From House Report language – House Report 107-436 Bob Stump National Defense Authorization Act for fiscal year 2003…

“The Committee commends the Secretary of Defense initiative to eliminate substandard military family housing by 2007 by aggressive use of housing privatization authorities…”

From Senate MILCON Appropriation Bill, 2004 (S. 1357)—Report 108-82, from Senator Hutchinson-SAC MILCON Chairwoman…pg 14

“This Committee has supported the Department of Defense program to privatize military family housing. The Department has shown that private sector financing, ownership, operation, and maintenance of military housing can help eliminate inadequate housing faster than could otherwise be achieved…”

In addition to this, the MHPI has been designated a President’s Management Agenda Initiative, and both Secretary Rumsfeld and President Bush have made it a priority to eliminate inadequate family housing units by 2007, moving the DoD deadline up from 2010.

For more information see the President's Management Agenda (500K PDF).

PROGRAM IMPLEMENTATION

How does DOD budget for Military Housing Privatization projects?
The amount of money that must be allocated for the MHPI depends on the scored cost of the projects that have been approved for a given fiscal year. See question below for more details.

What does Office of Management and Budget scoring of a project mean? What’s involved with scoring a project? How can I learn more about this process?
Budget scoring (or “scorekeeping”) is the percentage of dollar value, from 0%
to 100%, of a project’s cost that must be allocated to an agency’s budget in a given fiscal year. Therefore, if a project cost of $1 million is scored at 10%, then $100,000 of the agency’s budget authority for that year must be used to cover the assessment. According to the scoring guidelines, a project must be fully funded with sufficient budget authority in its first year to cover the Government’s long-term financial commitment to the project.

Each of the authorities created for the MHPI has an associated budget score. Due to variations in applying the authorities (10 U.S.C. Sections 2873-2879), OMB scores privatization projects on a case-by-case basis. The scoring impact is assessed based on a realistic risk of potential long-term liability. For example:

• or partnership transactions, the credit subsidy represents 100% of the cash equity provided by the Government.
  
• For Government limited guaranteed private sector loans, the credit subsidy represents the net present value of the cost of estimated defaults, net of recoveries.
  
• For Government direct loans, the credit subsidy represents the net present value of 1) the difference between the interest rate on the loan and the interest rates included in the basket-of-zeros discounting method which utilizes a yield curve of zero coupon Treasury securities that have the same maturity as each cash flow, plus 2) the estimated cost of defaults, net of recoveries.

How long will the DoD legislative authorities last? What will happen after they expire?
DoD has received permanent authority from Congress for the Military Housing Privatization Initiative via the FY 2004 National Defense Authorization Act.

How are small, local, and minority owned businesses addressed in the MHPI authorities?
Although the Defense Authorization Act does not include any language addressing small, local and minority owned business requirements, developers are encouraged to seek out qualified small and local businesses and have used them on their projects.

Is DoD involving the local communities and governments?
Leaders from surrounding communities are contacted about the projects during the site visits that take place early in the privatization process. Moreover, most military installations already have well-established direct lines of communication with all key stakeholders (e.g., chambers of commerce; boards of realtors; elected and appointed officials; city and county planners; and, school boards). Each Service strives to keep these lines of communication open and work closely with local communities and governments to keep them informed and ensure they have their support. Developers are likewise expected to work very closely with the communities, to conduct a community impact assessment, and to adhere to local building and environmental standards.

What impact will privatization have on local school districts Impact Aid funding?
Because each state and locality funds public education differently, any reduction in Impact Aid will have a different impact depending on the location. However, most of DoD’s on-base projects envision long-term leases of government land, which does not affect the level of Impact Aid.

How does a site get chosen as a housing privatization candidate? Who makes the final decision whether to privatize?
In October 1998, DoD’s Office of Secretary of Defense (OSD) devolved execution of housing privatization projects to the individual Military Services while maintaining basic oversight responsibility in OSD. Under this management structure, each Military Service is responsible for assessing current and future housing requirements and for determining the best course of action necessary for revitalizing inadequate housing units and for keeping its housing inventory in good condition. The individual Military Service assesses the viability of a privatization project on an installation-by-installation basis taking into consideration housing needs and available resources and makes the final decision whether to privatize.

Do each of the Services have their own privatization program? How does that work?
Yes, although they do have to follow certain general DoD policy guidelines, each Service has its own privatization program. The Navy’s program is referred to as “Public Private Ventures”, the Air Force program is called “Housing Privatization”, and the Army’s program is the “Residential Community Initiative”. Each Service is responsible for evaluating the housing needs of their servicemen; determining which of their installations should be privatized; establishing their program’s policies and procedures; carrying out the private developer solicitation process; and monitoring their projects.

How does a Service select a developer for a MHPI project? What is an RFQ? What is an RFP?
The Request for Qualifications (RFQ) and the Request for Proposals (RFP) are the documents through which the Services communicate to the development community the privatization project’s existing conditions, arrangements, requirements and management (if applicable); the instructions to offeors; the basis for selection; and other general information. Each document is associated with a different solicitation approach applied by the Services.

The Air Force and the Navy follow a similar approach: after conducting an industry forum to introduce the project to the development community, the Services issue an RFP which they post on a designated website. Developers then go through a two-step selection process based on first, the developers’ qualifications, and second, their project development and management plan. The process terminates with the selection of one developer for the project. The Army, on the other hand, first issues an RFQ and then selects one developer based only on its qualifications. After the selection, the Army gives a stipend to the developer and works together with the latter to develop a Community Development and Management Plan (CDMP) tailored to the specific installation selected. If it is satisfied with the CDMP and the working relationship with the developer, the Army may choose to issue a notice to proceed to execute the CDMP.

Why are there so many different approaches to housing privatization? Can’t DoD figure out how best to accomplish the privatization of housing? Isn’t DoD wasting a lot of time recreating deals?
DoD’s privatization deals are different because they are each designed to address the site-specific housing needs of a particular installation. While using a cookie-cutter approach to privatization may be “easier,” it would not allow DoD to maximize the use of its limited resources in meeting housing needs. In fact, DoD has found the inherent flexibility in the legislative authorities provided to it by Congress (i.e., it can pick and choose which authorities to use at each site) to be ideal for solving its housing problems. It is also important to keep in mind that housing privatization is currently a pilot project. The goal of the project is to test the usefulness of the legislative authorities. To do this, DoD needs to try different approaches to housing privatization projects. DoD is, however, committed to completing housing privatization deals as efficiently as possible and has been making great strides toward standardizing the process while continuing to recognize the uniqueness of each installation.

Who are the Military Services points of contact (POC) for Military Housing Privatization?
See Business Opportunities for a list of Services POC

How can I find out about upcoming MHPI projects?
The best information about the Military Housing Privatization Initiative, including contractor opportunities and a listing of currently identified military housing privatization projects, can be found on this website. Specific information about upcoming industry forums and privatization projects (including requests for proposals or requests for qualifications) can be obtained from the housing privatization websites maintained by each of the military services (Army RCI, Navy PPV, Air Force HP).

Another way to search for business opportunities within the MHPI is through the Federal Government’s FedBizOps website. Through this website, commercial vendors seeking Federal markets for their products and services can search, monitor and retrieve opportunities solicited by the entire Federal contracting community. To search for a synopsis of ongoing housing privatization projects, go to the FedBizOps website, enter 'housing privatization' in keyword search, select an Agency and click search. Select the project you want to review. After viewing the synopsis of the project, you may register to be put on email distribution list for that project. Please note that not all current solicitations are posted on the website yet.

BUSINESS/DEVELOPER FAQs

Since MHPI is based on the 1996 act, is there a danger of Congress putting a halt to the initiative or modifying it in some significant way?
The MHPI legislative authorities were made permanent in the National Defense Authorization Act of FY 2004, so DoD does not foresee any major Congressional modifications or setbacks.

What types of financial tools are included in the Housing Privatization?
Under the MHPI authorities, DoD can work with the private sector to revitalize military family housing by employing a variety of financial tools-including direct loans, loan guarantees, equity investments, and conveyance or leasing of property or facilities. For more information on these authorities, see MHPI Overview.

How much investment is required in these deals by a developer?
Each of the Military Services approaches equity in a different manner. For example, the Air Force has determined that project owners must contribute a minimum of 5% cash equity.

How much can the investors expect to make on their investment?
Return on investment will vary by project. Housing privatization projects are competitively bid, so the competition of the marketplace will ultimately determine an investor’s rate of return. DoD’s goal is to obtain the best value for its subsidy contribution.

What is the income stream for these projects based on?
The projects’ income stream is based on the Basic Allowance for Housing (BAH). For more information on BAH, refer to the question below.

How does DoD develop BAH?
BAH is based on a member’s geographic duty location, pay grade, and if he or she has dependents. The purpose of BAH is to provide Service members accurate and equitable housing compensation based on housing costs in the local civilian housing market. It is paid to a service member when government quarters are not provided to them. BAH rates are computed by the Perdiem, Travel and Transportation Allowance Committee using a statutory formula that is based on the median cost of adequate housing in the areas where people live. In accordance with former Secretary Cohen’s announcement to eliminate out-of-pocket housing costs for military members, the BAH system seeks to provide the typical service member with the ability to secure quality housing, irrespective of their duty location.

How does the developer receive Service member’s rents at a privatized project?
The Service member chooses to sign a lease and pays rent directly to the developer.

Will DoD give developers some guarantee that Service members will live in privatized housing?
No occupancy guarantees will be provided to developers. Developers will build/renovate housing communities where the Service members will chose to live.

How do you factor in the possibility that a military installation being privatized is closed?
Section 2873. Direct loans and loan guarantees allows DoD to provide a limited guarantee against base realignment and closure (BRAC). If a base closes, developers will still own and manage the leased property and housing on it and can therefore rent it out in the private market.

Does the Davis-Bacon Act apply to privatized developers?
The individual developer is responsible for implementing Davis-Bacon provisions, where applicable.

How is renter’s insurance handled on these projects?
The developer is required to provide a standard renters insurance package (reasonable deductible and policy limit) to its tenants, the Service members.

Are property taxes considered in these deals?
Although DoD will not negotiate with the local jurisdiction on any tax abatements, the developer is free to negotiate to achieve any tax abatements.

What building codes are followed in these projects? Are new off-base units being built to be especially strong (or at least stronger than the old units), to resist terrorist attack, for instance?
No, both on base and off base units are being built to private sector residential standards and follow State and Local building codes. Just as private sector housing should be safe, affordable, and quality-built, DoD expects the same of the housing built as part of the housing privatization initiative.

What is an inadequate unit?
“Inadequate” is defined by each Service as housing which requires significant renovation or repair of kitchen, bathroom, infrastructure, plumbing, electrical beyond a certain dollar level.

After a deal is closed who handles tenant complaints?
Once a deal is closed, property management becomes the responsibility of the developer. Therefore, tenant complaints should be addressed to the developer’s or its subcontractor’s property management office onsite.

How many military authorities’ will I need to deal with at these projects—what will the structure look like to address tenant issues?
In most cases, these projects have management review committees (MRC) that have representatives from both the Government and Developer. The MRC will meet periodically and address project issues.

How will the DoD ensure that a developer performs?
DoD wants market forces to drive contractor performance. This means that the primary enforcement mechanism is the ability of the military members to choose whether to live in privatized housing or in off-base private housing. In addition, the structure of each deal provides some mechanisms to oversee developer performance. Contract management plans and ground leases provide for contract performance over time. Depending on the financial structure of the deal, DoD may also have loan documents, loan guarantees, and intercreditor agreements. Each deal will specifically design these mechanisms to work together to provide adequate DoD controls. DoD will also require the developer to include funding in contingency escrow accounts. Finally, DoD has designed a portfolio management and monitoring tool called the Program Evaluation Plan (PEP) that includes detailed information submitted by each of the Services to OSD regarding their portfolios of MHPI projects, including information about deal structures, government costs, use of government authorities and on-going program performance.

How can I bid on a project?
The solicitation process differs slightly between the Navy and the Air Force, and the Army. After the Services make the decision to privatize an installation, they hold an Industry Forum to introduce the project to private developers. The Navy and the Air Force then draft and issue a detailed Request for Proposals to the construction community. Developers who satisfy the Services that they can successfully complete the project respond with equally detailed project proposals, and selection is made from among them. The Army uses a Request for Qualifications process by which it screens and selects a “development partner” to undertake privatization work for an entire installation. The Army and its private partner then create a development concept for the project.

How can I know what I’m bidding on?
When the project concept is approved by OSD and Congress has been notified of the solicitation proposal, the Services hold an industry forum to introduce the project to the construction committee. Once the solicitation is issued, the Services also hold local pre-proposal conferences so officials may travel to the communities and meet with developers and financiers who may have questions and want to learn more about the process and project specifics. These two events, in addition to the solicitation documents, provide developers all the necessary information on the projects they are bidding on.

How long does it take for a privatization deal to go from solicitation to award?
As the program matures, the time from issuing the solicitation to award should settle in between 8 to 14 months.

How many companies have been awarded MHPI deals and what did the deals look like?
Over twenty companies have been awarded deals individually or in a partnership to date. Given that project requirements differ depending on the Service privatization program stipulations and the installations’ conditions, each project deal has been different. For a list of links to to these companies, see Awarded Projects Websites.

How can I find out about upcoming MHPI projects?
The best information about the Military Housing Privatization Initiative, including contractor opportunities and a listing of currently identified military housing privatization projects, can be found on this website. Specific information about upcoming industry forums and privatization projects (including requests for proposals or requests for qualifications) can be obtained from the housing privatization websites maintained by each of the military services (Army RCI, Navy PPV, Air Force HP).

TENANT FAQs

How will the transition from military to private sector work?
It’s a three-step process. At each installation, the Services will do a preliminary feasibility assessment to determine the requirements and screen potential candidates for privatization. During the next phase, draft real estate documents and requests for proposal are developed. During the final phase, the Air Force will issue RFPs, evaluate proposals and plan and execute the transfer of ownership and management to the private sector.

How are privatized housing rents determined? How does DoD ensure that the privatized housing is affordable for military members?
DoD’s policy on housing privatization allows rents to be based on the Basic Allowance for Housing (BAH) with the estimated cost of utilities included. The developer normally includes a reduction of 110% of expected utility costs in the rent structure to eliminate the chance of any out of pocket by the service member.

Does a service member have to live in privatized housing if it is available or risk losing his or her housing allowance?
No. Like all military family housing, Service members are not required to live in privatized housing. DoD’s goal is to create privatized housing developments that are places where military members will want to live.

What will happen with my utilities—will I need to start paying for them?
Yes, Service members will now be responsible for paying their own utilities. Service members will receive a utility allowance that will be calculated annually and based on historic information. If a service member conserves utilities then that service member will pocket the difference. If a service member does not conserve then that service member will probably pay some out of pocket costs.

If these deals last for 50 years, how will DoD ensure they are being managed properly?
DoD has designed a portfolio management and monitoring tool for that purpose called the Program Evaluation Plan (PEP). The PEP is a semi-annual reporting system that includes detailed information submitted by each of the Services to OSD regarding their portfolios of MHPI projects, including information about deal structures, government costs, use of government authorities and on-going program performance. OSD uses this information to monitor the program’s progress, to perform financial and performance oversight, and to implement program improvements. However, each Service and installation military personnel are responsible for making sure that the developers are complying with the conditions stipulated in their contracts.