San Diego Business Journal

The historic Naval Training Center's conversion into the $850 million mixed-use Liberty Station in Point Loma has weathered some stormy seas in recent years. Now the project , being hailed as "Balboa Park on the water" , is being touted as a national role model for other communities.

The Environmental Protection Agency is featuring Liberty Station, along with two other military base conversions, in a book it's writing titled, "Turning Bases Into Great Places: New Life for Closed Military Facilities."

Along with the former Lowry Air Force Base outside of Denver, and Orlando, Fla.'s former Naval Training Center, Liberty Station is commended for using "smart growth" techniques.

"They used the base's location, infrastructure, historic buildings and environmentally sensitive lands to the best advantage," according to the book's introduction.

"I toured Liberty Station briefly in September," said Megan M. Susman, an environmental protection specialist in the EPA's office of policy, economics and innovation in Washington, D.C. "The design of the buildings is very nice."

But one size doesn't fit all, said Susman, whose office looks at growth and development issues, and how they impact the environment.

"There are so many different factors that apply in every base redevelopment," she explained, "the community, the needs of the market, or restrictions by the Navy."

Tim Ford, the executive director of the Washington, D.C.-based Association of Defense Communities, agreed.

"Every community is different," he said. "You very rarely can take one project and put it on the ground in another community and make it work."

His nonprofit group is made up of local governments, going through conversions, developers, architects, financial institutions, environmental cleanup companies, "whatever entity is tasked with base closures." Its role is to "dissect" all the factors that contribute to a successful conversion, said Ford.

Starting The Process

Liberty Station, which covers 361 acres of prime bay-side property less than six minutes from Lindbergh Field, is a collaboration of the city of San Diego Redevelopment Agency and San Diego-based Corky McMillin Cos.

In 1999, amid much controversy, McMillin, in business for 45 years, was selected by the city for the project, beating out Lennar Corp., a multi-billion-dollar national homebuilder based in Miami.

The Naval Training Center was among other military bases in the country targeted for conversion, a trend that started in 1988 when the Department of Defense began the Base Realignment and Closure process, known as BRAC, to streamline operations and increase Defense Department efficiency.

During the first four rounds of BRAC proceedings, from 1988 through 1995, the department closed 97 major military installations nationwide and realigned 150; and in the most recent round, in 2005, approved the closing of 22 major bases and the realignment of 33, while shutting down or cutting back hundreds of others.

The city of San Diego, the Navy and airport officials still retain ownership of about 80 percent of the land at the former NTC, which started out as the Naval Training Station on Oct. 27, 1923. During the next 74 years, some 1.7 million recruits underwent primary, advanced and specialized training at what became, in 1944, the Naval Training Center.

McMillin was given the right to lease and sell some of the land to offset the cost of the redevelopment and has completed 75 percent of the infrastructure upgrades, including a 46-acre public park and promenade that intersects the entire project.

NTC's redevelopment, which now includes or will include residential, office, schools, recreation, retail and hotels, began in January 2001, with build-out expected by 2008.

"Liberty Station is a great example of using the private sector to manage a redevelopment project," said Ford. "Corky McMillin has been the day-to-day entity that makes that project move. We definitely can learn from them. How did they make that partnership work?"

The Association of Defense Communities will be examining that question, along with many others related to base conversions, at a conference scheduled for March 5-7 at Westfield Horton Plaza in Downtown San Diego.

About 500 attendees are expected, and the scheduled keynote speakers include Anthony J. Principi, the chairman of the 2005 Defense Base Realignment and Closure Commission; Phil Grone, deputy undersecretary of defense for installations; and former San Diego Mayor and California Gov. Pete Wilson. A tour of Liberty Station also is scheduled, said Ford, who recently toured the site.

"I think the progress has been incredible," he said. "I tour a lot of bases around the country, and I saw the creative way they've included a variety of issues, including the arts district. It's a very unique setup. It will be a great gift for the whole community."

The group also is keeping an eye on the Navy Broadway Complex at Broadway and North Harbor Drive, a site that developers have been salivating over for years. The Navy now is mulling over plans for its redevelopment.

"It's something of interest to our members," said Ford.

Rocky Road

The redevelopment of NTC been an uphill battle, one that Mark Kasky, project director for the NTC Foundation, the nonprofit element of Liberty Station, tries to put in perspective.

Kasky, who's been involved in the project since 1999 and now has a home on the site, had served as the executive director for the Fort Mason Foundation in San Francisco, a conversion that resulted in a nonprofit cultural center , a project that took decades to be realized.

"It's human nature to wish that everything would happen quickly," he said. "In San Diego, this has happened very quickly. The hard part was getting to where we are right now, showing the public and money people and public officials the quality we are able to achieve."

Kasky's organization still maintains regular ties with its San Francisco counterpart, exchanging information, a growing trend shared by other communities across the country that are undergoing military base conversions.

"San Diego will be a big boost to that effort," he said.

The consensus seems to be that knowledge is not only power, but also good business.

"It's not your everyday kind of product," observed Jeff Rogers, director of development for La Jolla-based CW Clark Inc., which is building the Marketplace, the commercial component of Liberty Station. "It costs a lot more than doing new buildings from the ground up. There are structural issues , taking an old Navy building built in the '40s and making it conform to current codes and energy conservation guidelines, all the things modern people expect today."

Breaking The Mold

There have been recent setbacks.

In June, mold was discovered in more than 30 residential units, causing the city to put a hold on $15 million of private-placement bonds earmarked for the $14.7 million, 47-acre regional park.

The problem has been fixed, for the most part, and the homeowners are back inside, according to Walter Heiberg, a McMillin senior vice president and project manager for Liberty Station.

"The units ran the spectrum, where we went in and found nothing, some where we had to replace some baseboard, and others where we had to move families out for a few weeks," he said.

McMillin paid for temporary housing, the cost of moving out the furniture, and gave food allowances when needed.

"We did everything we could to cover any cost associated with it," said Heiberg. "The ticker is still going. The total cost of remediation is $5 million, a big hit. We confronted a bad situation, because it was the right thing to do. We hope to recoup some of the money through insurance."

McMillin also is looking into how much of the problem will be shared by the subcontractors.

"We used the most environmentally friendly insulation we could find when building the homes," Heiberg explained, "especially good for sound. Since we're close to the airport, we thought that was important."

But, the insulation had to be wet when applied, which happened to coincide with a particularly wet season in San Diego.

"It didn't dry properly before the drywall went in," said Heiberg. "The insulation didn't get moldy, but the drywall got moldy."

The city now will have to review the remediation efforts on the units, and more paperwork will have to be filed, but Heiberg said he expects approval in the next month or so, and the bonds to be sold in the early spring. Not that the hold delayed anything.

"Even though the bonds got stopped, Corky decided we would start the park anyway," Heiberg said of the company's leader at the time, Corky McMillin, who died on Sept. 22. "We weren't required to start the park, but it was the right decision. It's under construction and 50 percent done. We hope to have the park opened late this year, or early next year."

Even then, the park won't be open to the public for about three months after completion, said Heiberg, in order to give the grass time to grow.

Meanwhile, the 349-unit residential component is sold out, and includes 140 condos (Anchor Cove), 80 detached, single-family homes (Admiralty Row), and 129 detached row homes (Beacon Point).

Each neighborhood has several different floor plans and sizes, ranging from two to five bedrooms and 1,000 to about 2,800 square feet.

Original prices, all market rate, ranged from the mid-$400,000s to the mid-$800,000s, with resales of the highest-end homes going for more than $1 million.

Rough Waters?

One of the remaining issues to be resolved , the Navy's transfer of the boat channel to the city , still has to be negotiated.

"We intend to have a discussion with the Regional Water Quality Board and the Navy this spring," said Day. "The major concern is water quality, and how clean is clean. We're all anxious to get back to the table and proceed."

According to Jennifer Emberger, the deputy base closure manager for NTC, "The Navy is moving forward with their environmental assessment of the boat channel. Identification of potential responsible parties is in progress, but has not yet been worked out."

Also still under negotiation is what hotel will be built on Liberty Station's east hotel site, on the other side of the Harbor Drive pedestrian bridge. According to Heiberg, it's been a tough sell, especially factoring in the Sept. 11, 2001, terrorist attacks that "stopped the market for three years."

"But it's still a good market for hotels, although the larger hotels still are difficult to get financed," he said.

In October, the Coastal Commission approved plans for the project's resort village on the west site , a hotel complex that will host a 200-room Courtyard by Marriott, a 150-room Hilton Homewood Suites and a 33,000-square-foot conference center.

"I believe this project is by every measure becoming the success I think many of us knew it would be," said Heiberg. "It might look like we're making sausage here, but we have got a gourmet breakfast going."

Liberty Station

What: An $850 million mixed-use development in Point Loma being built on the site of the former Naval Training Center.

Who: The project, which covers 361 acres of prime bay-side property, is a collaboration of the city's redevelopment agency and San Diego-based Corky McMillin Cos.

Major Tenants: Trader Joe's will anchor the Marketplace, the retail component of Liberty Station. Among the office tenants signed are Cubic Defense Applications, McMillin Capital, TriWest Insurance, the law offices of Stutz Artiano Shinoff & Holtz, and Telisimo, formerly the Aradiant Corp.

On the west hotel site, the project's resort village will host a 200-room Courtyard by Marriott, a 150-room Hilton Homewood Suites, and a 33,000-square-foot conference center. The hotel for the east hotel site is still being negotiated.

Completion Date: The residential component is completed and sold out; the commercial, retail, park and NTC Promenade, dedicated to arts, culture and science, are under way. Build-out for the entire project is expected in 2008.