Navy lease idea prompts visions

Officials at Whidbey Island Naval Air Station are looking into the possibility of leasing out a sizable piece of property as well as a separate building on the Seaplane Base.

Len Schilling, public works officer at NAS Whidbey, said the base has hired a firm to conduct a market survey and feasibility study on the potential for an enhanced use lease on the former Navy Lodge property and Building 12.

“It’s land we aren’t using but don’t really feel comfortable getting rid of,” Schilling said.

Rumors about the Navy’s plans have already circulated around Oak Harbor, spurring officials and candidates for public office to speculate on the possibilities. A common idea is to build shops and restaurants on the Navy Lodge property, which is adjacent to the Oak Harbor Yacht Club and the city’s marina.

At the same time, some people are concerned that private businesses on federal land would have an unfair advantage over local stores because they may not have to pay certain taxes or fees.

Scott Smith, the installation program analyst for NAS Whidbey, said the marketing study is in response to a directive from Navy officials to identify under-utilized property and explore the potential for enhanced use leases.

“The Navy is looking across the board at opportunities,” he said.

Under an enhanced use lease, a private or governmental entity could lease the Navy’s property over a long period of time, like 30 years, and pay the Navy the market value of the lease through either cash or services.

“You can basically think about it as rent paid up front,” said Mike Brady, director of real estate at Naval Facilities Engineering Command Northwest. He said any money gained is usually split between the installation and the Commander, Naval Installations Command.

An example of the potential for an enhanced use lease, Schilling said, is the Moanalua Shopping Center in Hawaii. Under the deal, a development firm received a 40-year lease on a 15-acre commercial property. In exchange, the firm built a 55,000-square-foot administrative building that the Navy gets to use at no cost for 40 years.

The lease created over $17 million in value to the Navy, according to the U.S. General Services Administration.

On Whidbey, the former Navy Lodge property is located just inside the Maui Gate at the Seaplane Base. Nicknamed “the old train wreck,” the empty site filled with cement pads used to be the site of many single-wide mobile homes that served as temporary lodging. It may have value to a developer because of its proximity to the marina and downtown Oak Harbor. Any building would likely have a great view of the water.

Building 12 is located up a hill from the Navy Lodge, but also has amazing views of the marina and water. It is on the other side of a fence from the Skagit Valley College campus. Smith explained that the building is “a historical candidate” because it was the original command building for the Seaplane Base.

Because of its historical value, Smith said the Navy may not allow a company or organization to tear down the currently-vacant building to use the valuable property. Instead, he postulated that an entity could lease the building and renovate it as payment for the use.

“We don’t do a very good job taking care of it right now because we don’t have money to restore it,” he said.

Currently, the two properties are within the Seaplane Base and are off limits to the general public. But Smith said the gates and fences could be moved if a lease went forward. He said it would be especially easy to move the gate and fences for the Navy Lodge property since it’s just inside the Maui Gate.

“It’s not a show-stopper,” he said.

Schilling said local Navy officials met with the consulting firm, New York-based Alvarez & Marsal, in May for a meeting to begin the market analysis. The firm has or will soon inspect the site and the building, research real estate market trends, consider possible environmental issues and meet with individuals and organizations, including city and county officials, the Oak Harbor Chamber of Commerce and the Island County Economic Development Council.

The study may be done by the end of the month, Schilling said.

“The analysis will find what is the demand, what would be the highest and best use of the area and if it is feasible to move forward with an enhanced lease,” he said.

If the study does find that a lease is feasible, the Navy would move to the next step in the long process, which is the development of solicitations. That’s followed by the evaluation of proposals, the development of business and leasing plans, and finalization with the developer.

Any deal, Smith said, would even have to be approved by Congress.

Brady estimates that the process, not including the feasibility study, would likely take at least a year.

The Navy is aware that the Oak Harbor community may have “sensitivities” about what may be built on the sites, Smith said, and will work to make sure nothing inappropriate ends up there.

Oak Harbor Chamber of Commerce Director Jill Johnson said she’s excited about the potential at the Navy Lodge site, but she’s also worried that new businesses on federal land would have advantage over established businesses if they don’t pay certain taxes or development fees.

“I don’t want to put up any roadblocks,” she said. “I just hope we are looking at the big picture if we do this.”

Councilwoman Sue Karahalios, a candidate for mayor, said at a voters’ forum that she would be concerned if city residents ended up having to foot the bill to extend infrastructure to the area.

When it comes to taxes, Oak Harbor Finance Director Doug Merriman said any businesses that lease the Navy land would have to pay sales taxes, but property taxes are another matter. Federal land is exempt from property taxes, he said, but the companies that own buildings on the land may have to pay property taxes just on the value of the buildings. The Seaplane Base is considered to be within the city limits.

Also, a business on Navy property could conceivably get a break when it comes to hooking into sewer lines. Normally, a new business would have to pay a hefty system development fee, also known as an impact fee, when it connects to city sewer service. The fee is meant to pay for a new development’s impact on the system.

In this case, Merriman said a hypothetical business may either hook into the city’s lines — and pay the system development fee to the city — or hook into the Navy’s lines. He’s not sure what, if anything, the Navy would charge in the way of hook-up fees.

So there’s a potential for some competitive advantage, Merriman said, but it would all depend on details of the agreement with the Navy.

You can reach News-Times reporter Jessie Stensland at or call 675-6611.

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