Norfolk Must Choose Between
Development and Air Base

John Mamoudis grew up in the Norfolk, Va., area, so he was accustomed to planes buzzing overhead from the nearby air base. He also didn't think much about how close the 72 luxury condominiums he was planning were to the flight path for the Oceana Naval Air Station.

Then the federal government started making noise about limiting development around the air base. In the hopes of avoiding a showdown, the city council of Virginia Beach, where the project was located, voted to buy Mr. Mamoudis's land for $15 million.

Fort Monroe, on the Chesapeake Bay, has been recommended for closure.

The conclusions of the BRAC commission, which will become law unless the Congress rejects them, threaten to destabilize Norfolk area's real-estate market and economy, which has been comparatively strong in recent years thanks to robust military spending and a booming shipping industry. Unemployment was 4.1% in July, below the national level of 5.2%, according to the Bureau of Labor Statistics. The region has a population of about 1.6 million. Mr. Mamoudis said other developers are alarmed by his experience and the general uncertainty in the market. "People who are conservative by nature are finding reasons not to do things," Mr. Mamoudis said.

While the area's economy has diversified since it was hit by severe military downsizing in the mid 1990s, military and defense-related businesses -- including the world's largest naval station in Norfolk, which houses carriers that are deployed with Oceana's jets -- make up one-quarter of its workers and 36% of the local economic output, according to Property & Portfolio Research Inc., a Boston-based real-estate research firm. If Virginia catches a cold when the Pentagon sneezes, then a loss at Oceana would amount to "a painful case of strep," said Kevin Hall, a spokesman for Virginia Gov. Mark Warner.

To date, the warehouse sector is one of the star performers of the area's real-estate market. It reported above-average rents and below-average vacancies in the second quarter, fueled by demand for distribution space prompted by rising volumes of Asian goods arriving at the expanding Ports of Virginia, PPR said.

The office market saw vacancies fall but rents inch downward in the second quarter, though they are expected to rise through 2009, PPR said. A loss at Oceana isn't likely to directly affect the region's office market though certain corridors near the base with high concentrations of defense contractors could be affected, said Jordan Slone, chairman of the Norfolk-based Harbor Group International.

By contrast, the slated closure of Fort Monroe, located on a roughly 570-acre peninsula in the Chesapeake Bay, could open up new real-estate opportunities. Professor Gilbert Yochum of Old Dominion University in Norfolk views the base as a "developers' nirvana" due to its rich history and stock of gracious officers' homes with waterfront views. Even before the recent base closing decision, Drucker & Falk, a property-management company based in Newport News, was moving ahead with plans to redevelop the stately Chamberlin Hotel on the base into a retirement community.

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