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SAN ANTONIO-This morning, the US Army South Command raises its flag over the city in a monumental announcement of a relocation from Puerto Rico to Fort Sam Houston, where the 114,000-sf lease is the mortar needed to jumpstart a $55-million project for the nation’s first public-private partnership at an active Army base.

US Sen. Kay Bailey Hutchison and a contingent of Texas leaders will join Army officers and the project’s private sector partners–Weston Solutions Inc. of West Chester, PA and Orion Partners Inc. of San Antonio–to announce the command’s phased-in relocation from Fort Buchanan. The USARSO lease is the third one cut, and the largest, for the Offices at Fort Sam Houston, a historic adaptive reuse project of three late 1930s-era buildings on the northeast local base.

In June, the US Army Medical Information Systems & Services Agency took 75,000 sf, and the US Army Southwest Regional office’s newly formed Installation Management Agency committed to 51,000 sf. All leases carry 17-year terms.

“It’s impossible to acknowledge all the people who’ve really worked hard to make this happen,” Tom Chandler, Orion’s president and COO, tells GlobeSt.com. Two years ago, Orion and Weston signed 50-year leases to steer the unique adaptive reuse of a 200,000-sf former base hospital and two 121,000-sf barracks. The list of credits for the project’s launch includes Lt. Gen. James B. Peake, former post commander and now the US Army’s Surgeon General, and the Texas congressional delegation with recognition to Hutchison and congressmen Ciro Rodriguez, Charlie Gonzales and Henry Bonilla.

The $40-million first phase calls for reworking interiors of the former seven-story Brooke Army Medical Center and one of the four-story barracks, the North Beach Pavilion. The USARSO signed for the ex-hospital space and the other two tenants will fill the retooled barracks. USARSO is setting up shop at nearby Camp Bullis until “old BAMC” is ready to occupy in late spring 2004. The pavilion keys will turn in February 2004. Orion Construction Services is the general contractor.

Chandler says it was known from the onset that the project would have to be leased before it could be funded. With the commitments in hand, JPMorgan Chase Bank’s Dallas office cleared $38 million in development cost financing with a two-year term and additional year option to fuel the project. The Orion-Weston partners are responsible for development capital, renovation and leasing.

The Offices at Fort Sam Houston started taking shape in 1996 when the Army cut the ribbon on a new hospital and couldn’t raze the antiquated buildings because they are contributing structures to a National Historic District. Three years later, the Army floated an RFP for development proposals. Weston, whose parent does remediation work at military installations, approached Orion to be its partner on the novel development proposal.

The project was rumored to be in jeopardy when the post-Sept. 11 world forced the base, one of the few always open to the public and bisected by a major thoroughfare, to switch to controlled access. Chandler says the lockdown shifted the target market from traditional office users to government entities and high-security tenants like data centers and defense contractors.

Chandler stresses there was no commitment in place for the Army to be a tenant although it has worked out that way. He says USARSO, led by Maj. Gen. Alfred Valenzuela, was searching for some time for a relocation site when Fort Sam Houston flashed on the radar screen.

The inbound command is responsible for Army operations in Central and South America and the Caribbean, including responses to natural disasters like Hurricane Mitch and volcanic activity in Ecuador. Effective Oct. 1, USARSO becomes a major subordinate command of Forces Command, headquartered at Fort McPherson, GA.

“The Army is treated just like any other tenant,” Chandler says, noting lease negotiations followed the norm. The property’s quoted rate runs from $19.50 per sf to $24 per sf, with Paul Fagan of locally based Cross & Co. holding the assignment. In the first phase, there are about 32,000 sf up for grabs in the former hospital on the north end of a historic parade grounds and roughly 28,000 sf left to lease in North Beach Pavilion. The 121,000-sf South Beach Pavilion constitutes the second phase.

The Texas Historical Commission gave permission to take the buildings back to shell while preserving such key elements as the entry and hand-painted plaster ceilings in Spanish Colonial Revival-style hospital. The state agency must also approve tenant finish-out plans. North Beach Pavilion plans are cleared and the “old BAMC” finish-out is being polished for presentation, according to Chandler.

With the project now speeding toward construction, Chandler confides Orion-Weston is looking at other applications for a plan that’s been 3.5 years in the making. “Clearly we are going to be looking for redevelopment opportunities that fit the pattern that we’ve established,” he says, noting the plan is tailored to active bases unlike Kelly Air Force Base, which is a closed base converted into an industrial property in the city’s far southwest submarket. “There are going to be a lot of opportunities for the government and private sector to add to existing installations,” Chandler says. “This initiative attacks piecemeal the problems and opportunities.

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