Conversation: Port San Antonio CEO Retires

Robert Rivard: Bruce, congratulations on your retirement as CEO of Port San Antonio. I still remember your arrival 12 years ago.

It takes a certain amount of intestinal fortitude to arrive at a shuttered Air Force base with the mandate to bring it back to life as a viable aerospace and industrial park.

Remind us of what you encountered upon your arrival in 2002, one year after Kelly Air Force Base finally closed.

Bruce Miller: While it’s true that there was a big job ahead back in 2002, the work undertaken over the past twelve years and successes since owe a debt of gratitude those who helped shape this organization during its earliest years in the late 1990s.

Namely, then-Mayor Bill Thornton, Sen. Kay Bailey Hutchison, my predecessor Paul Roberson and scores of other community leaders did important legwork to ensure continued momentum as Kelly transitioned from military to commercial operations. Chief among their accomplishments was working with the Department of Defense and the White House so that the closure of Kelly became a six-year process, versus the one-to-two years that it traditionally took to close or fully realign other facilities around the country.

As a result of their effort, and their work to bring the first private sector customers to former Air Force facilities, buildings on our property never went dark. One day workers were federal employees, and the following week they got their paychecks from of some of the early enterprises who set up shop here – Boeing, Lockheed Martin and Pratt & Whitney among them.

So this ongoing momentum was essential. If work had halted completely, it would have proven very difficult, if not impossible, to reopen shuttered facilities and identify a new slate of thousands of workers.

In the years since my arrival, our focus has been on continuing to support the growth of our customers and develop and execute a master plan and strategies focused on highest and best use of the 1,900-acre site and millions of square feet of industrial buildings. This has resulted in a focus along three key business lines that have grown here in the years since: aerospace, which is undergoing important changes from military to increased commercial work; military/government customers, which now account for half the workforce at the Port as missions such as the 24th Air Force and other headquarters consolidate here; and logistics/manufacturing, which utilizes our well positioned railroad and air-served platform.

Another important aspect of our work has been to “normalize” the property–gradually making it a seamless part of the city. For most of the 20th century, as a military installation this property was closed off from the surrounding community and operated independently. Buildings did not have city-issued certificates of occupancy and were built to federal military codes, which differ from local standards. The same held true for roads and utility infrastructure within the former base.

Normalization entails following the city’s uniform codes, establishing platting and zoning, issuing certificates of occupancy, developing an address system, upgrading building infrastructure that meets or exceeds municipal standards–all essential ingredients to attract private investment.

RR: The conversion of Kelly AFB into Port San Antonio wasn’t your first experience with closed military bases. You came to San Antonio after serving as CEO of the Rickenbacker Port Authority in Columbus, Ohio, also a former Air Force facility redeveloped for commercial use. How were the two projects similar and how did they differ?

Miller: They really are two distinct systems. Rickenbacker was a land-based project that did not have the building income base that Port San Antonio enjoys, so it wasn’t feasible to generate enough revenue from airport operations and land sales and leases for it to be a self-sustaining redevelopment. At Port San Antonio, the bulk of our income comes from our real estate activities–facility and ground leases, maintenance services, construction and third-party investment.

RR: What would you regard as your most important achievements as CEO at Port SA?

Miller: We’ve become a national example of how to redevelop a large former military base by a self-sustaining business model–by focusing on highest and best uses of the property’s redevelopment.

This means that we develop the property strategically–identifying the industries that are best suited to grow here and provide the maximum number of good jobs. To achieve this, we align our business to customers’ needs and remain flexible to make necessary adjustments along the way.

This approach has allowed us to be profitable over the past twelve years, even during a significant recession.

We have to ask: What were the biggest disappointments?

Miller: Half of my tenure at the Port was during the worst economic downturn since the Great Depression.

Although we weathered the recession, I believe that in a more robust national and international economy we would have been able to develop many new real estate projects and score some additional large deals in the past six years. Remember, Kelly is only 40 percent redeveloped today.

RR: How would you rank San Antonio’s efforts to redevelop its close military facilities — Kelly AFB and Brook AFB, now Brook City-Base — compared to how it’s been done everywhere from Dayton to San Francisco?

Each community has its special set of circumstances and challenges, and on something as specific and complex  as  redevelopment of a military base over several years it’s not really feasible to do an apples-to-apples comparison.

That said, there have been many important things working in our favor here in San Antonio. With regard to the Port, as I mentioned, a six-year transition between the initial realignment announcement in 1995 to official closure of the base in 2001 was essential for establishing the necessary operations and customer base to create a self-sustaining enterprise.

The other big advantage to our community was the fact that most Kelly workers were civilian employees, and not enlisted service members who would be shipped elsewhere after closure. This meant that transferring their employment from the government to the private sector was almost seamless. Though some people lost important jobs during that transition, the large job losses that were initially feared when word of closure came out in 1995 never materialized.

The importance of the presence of a large, proven workforce during the days of transition cannot be overemphasized. In addition to the existing buildings and infrastructure that the first companies occupied, the fact that they would not need to hire and train or retrain thousands of workers made this an attractive place to do business.

Fifteen years later, the same holds true. The future of advanced industries at the Port and throughout the region will be predicated by our ability as a community to inspire and educate our young people so they have the right skills to tackle careers in those fields.

Workforce talent, above all else, was the key to our strong beginning as an organization and will determine the Port’s ability to capture future opportunities. In key industries like aerospace and information technology, workforce is far and away the top consideration in site selection. This includes the availability of a well-qualified base of employees and the availability of strong local education partners to provide training/retraining and serve as a job pipeline.

RR: The development model for Port San Antonio has been something of a sink or swim proposition. There has been significant infrastructure investment by the City of San Antonio in roadways, utilities and rail spurs. But you’ve basically been on your own to generate cash and capital from tenant leases.

Some of us look back now and wonder if San Antonio adopted the right business model, or whether there should have been a continuing funding mechanism — a 1/8 of a cent sales tax, for example — to underwrite more robust and accelerated development. Now that you’re nine months from leaving, what are your thoughts on the business model going forward?

Miller: We’ve had great partners among our public officials over the years. As you note, they have provided important investment support to address the conversion and infrastructure needs of the property to spur development and economic growth.

And as we’ve grown there has been a greater appreciation by stakeholders about the true cost of converting a large former military base, and building the corresponding infrastructure, to develop the property to its full potential.

Back when redevelopment started in the aftermath of the closing of the base, those conversion needs totaled over $300 million — for everything from demolishing obsolete buildings to upgrading new ones to meet commercial standards and enhancing road and drainage infrastructure. This $300 million deficit does not include the cost of new buildings built since. So you can see that the Port did not really receive the land and Air Force facilities for “free.”

Over the years, thanks to public funding and the Port’s own investment, we’ve cut that down to about $145 million remaining today.

As those conversion costs are reduced, the Port becomes even more competitive to attract and grow new industries. Moving forward, public officials and citizens can determine how best to support this specific aspect of our work. Most recently, the 2012 bond provided $6 million for upcoming road construction that increases connectivity and enhances our logistics platform. Everything helps.

At the end of the day, the dividends to the community for these investments come in the form of jobs – those that are retained and those that can be generated in the future. A great example is the recent completion of 36th Street from Highway 90 to Billy Mitchell Boulevard.

This $50 million project was years in the making to raise necessary funds and, in addition to the Port’s own funding and planning support, includes a host of public partners. Among them was the City of San Antonio, which led construction, SAWS, CPS Energy, the Texas Department of Transportation, former U.S. Senator Kay Bailey Hutchison, former U.S. Congressman Charlie Gonzales, and the San Antonio Bexar County Metropolitan Planning Organization, which provided the final $15 million in federal stimulus funding so the project could break ground in 2010.

In addition to creating a redundant loop that supports growing commuter traffic and logistics activity on the property, the new road opens 400 acres at Kelly Field that are now accessible by aircraft. We consider this prime “beachfront” property to build future hangars and workshops for aircraft, which we estimate could support up to 8,000 related jobs in that part of Port San Antonio alone as we seek to grow the region’s aerospace industry.

RR: Mayor Julián Castro appointed a blue ribbon task force in 2013 to look at Port San Antonio’s business plan, its continuing development, and ways to make doing business here more attractive to the Port’s aerospace tenants, many of whom were facing the loss of federal contracts, the negative effects of sequestration, etc.

What were the most important recommendations made by the task force in December to the Mayor?

Miller: The final report is still in the works and has not yet been made public.

What the Mayor’s effort makes very clear, however, is that attracting and growing an industry as important as aerospace at the Port is an effort that requires the ongoing engagement of many sectors throughout our community.

While the military aerospace sector is seeing clear and likely permanent reductions as a result of draw-downs and the retirement of older aircraft, the commercial sector is on an upswing with strong forecasts in the years ahead. Airlines are profitable again and there is a huge new middle class in Asia that is spurring global demand for air transportation–from airlines to air cargo.

To be part of these opportunities, the billions of dollars at stake and the thousands of good paying jobs this could bring our region, it takes a community-wide effort and the Mayor is leading an alignment among the various groups–industry, economic development, workforce training and, of course, the Port as the platform where those future facilities will be built in our region.

As we’ve seen in recent years, aerospace represents a leading national economic sector. Aircraft are one of our most important exports. And aircraft building and maintenance expertise is one of our country’s most valued assets.

This is why communities around the country compete very intently to attract and grow that industry, since it can be an economic game changer. To succeed in landing those deals demands a collaborative effort. No single branch of government, no single set of incentives and no single industrial park can go at it alone.

RR: The Port is home to 13,000 high paying jobs and is a $4 billion enterprise. Do you think most people in San Antonio appreciate its importance on the Southside as an economic engine and job generator? What would you say is the Port’s long-term capacity as a 1,900-acre aerospace and industrial park? Could jobs there double over the next decade?

Miller: First, let me clarify, as I learned very early on during my tenure, that the Port is perhaps the only part of our city that can be accurately labeled as the Southwest side, since we straddle both parts of the community.

And, yes, I see clear signs that people –from our neighbors to city hall to the thousands of people who work here — that there is growing appreciation and understanding of our work.

Of course, the legacy of Kelly and its role leading the growth of San Antonio’s middle class, especially within the Hispanic community, during much of the last century was a tough act to follow. But with our large employment base today, I’d say that we’ve risen to the challenge.

Beyond stemming the feared job losses, we’ve created a new model and business platform that positions the community well for aerospace, federal agency headquarters, logistics, manufacturing and other key growth sectors for decades to come.

With regard to that potential–let me put it this way: As much as has been accomplished in the thirteen years since the closure of Kelly, as I mentioned earlier,  only 40 percent of the land on this property has been developed to date.

With the strategic development of additional facilities at our industrial airport, railport and growing mixed-use Kelly Center, we could well see over 30,000 jobs here are full development–far exceeding anybody’s expectations back in 1995.

The property can handle it, especially as infrastructure such as the recent completion of the 36^th Street extension and future road and drainage projects are tackled. Keep in mind that at 1,900 acres, the Port’s footprint is almost three times the size of downtown San Antonio’s central business district.

How quickly we get to those numbers also depends on what regional, national and international markets do to the anchor industries based here and being flexible to capture those opportunities.

For example–an important growth industry includes our government-sector customers. Back at the time of closure, conventional wisdom was that the Air Force, which retained use of certain small buildings throughout the property, would eventually leave.

That changed following additional closures and realignments announced in 2005. For San Antonio, that meant that numerous agencies would be consolidating to the region–bringing thousands of new jobs, including many civilian professionals. The Port has emerged as a strategic partner to support the Air Force’s pressing real estate needs by building necessary facilities that meet Department of Defense security standards.

Starting in 2008 we began a $60-million upgrade to a five-building complex at the Port, anchored by the 460,000-square-foot Building 171. The new office spaces in what is today the Lackland Annex complex are now home to the several military headquarters, including the Air Force Cyber Command, Air Force Medical Operations Agency, the Air Force Civil Engineer Center and others.

Today there are over 6,000 Air Force workers here, including engineers, environmental scientists, cyber security specialists, architects, attorneys and other professionals.

North of Lackland Annex we have a 45-acre site known as Lindbergh Park, for the development of additional secured office facilities–up to one million square feet–to further support this regional consolidation and add thousands of new workers at the Port.

RR: Since your arrival, you’ve worked with the City and the Alamo Colleges, among others, on workforce development, and you even host the Alamo Academy at the Port. How effective have these efforts been to address the historic claim that San Antonio does not have enough skilled workers to expand its manufacturing and industrial base?

Miller: What we have at Alamo Colleges is a pillar to grow advanced industries at the Port–aerospace, IT and advanced manufacturing. As I mentioned earlier, long gone are the days when industry would base its site selections on the best real estate deal. Now deals go the way where talented workers are.

Alamo Colleges has provided an essential platform to train / retrain incumbent workers as industries attract new projects and, of course, programs like the Alamo Academies are a world-class pipeline to identify and provide a solid foundation for future generations of workers.

In recent years, as a result of the economic downturn and sequestration, our aerospace customers whose workload was principally focused on military aircraft have not grown, and in some cases reduced, their workforce. But we’re coming out of that cycle and new commercial business is coming in through the door. So it will be critically important for the community to support proven efforts at Alamo Colleges and other institutions throughout our region so they can scale their educational platform accordingly.

We’ve already seen this with one of our key customers, Gore Design Completions. The company builds custom luxury interiors for wide bodied aircrafts in a hangar Port San Antonio provided in 2005. Since that time, a clientele that includes world leaders and other VIP’s has kept the company very busy, and they’ve reached 500 workers today and emerged as a global industry leader in this exclusive niche. Recently, the firm announced that this year it is bringing some of the first 787 Dreamliners in the world to be outfitted with luxury interiors, and this will require hundreds of additional workers, including engineers.

This underscores the importance of a close alignment between educators and industry to anticipate and prepare for these opportunities.

RR: Your departure follows the news that longtime Port San Antonio board chairman Wayne Alexander also is turning over the reins to his deputy on the board, attorney Alex Nava. You’ve agreed to serve for nine more months to give the board time to conduct a serious national search.

What will Nava and the board be looking for in a new CEO? What do you see as essential qualifications and what are the biggest challenges he or she will face?

Miller: A new President and CEO will no doubt bring his or her new outlook and areas of expertise. At the end of the day, it comes down to our mission: redevelop Port San Antonio to its highest and best use and create the conditions that maintain and grow quality jobs.

There are many ways to get there. And what the past fifteen years have taught us is that this property can be successfully run as a self-sustaining entity–its growth will depend on a long-term outlook to ensure its flexibility and ongoing collaboration with customers and other stakeholders to capture opportunities as they arise and to be business-minded: provide a good real estate deal and, beyond that, become a long term strategic partner to each of our customers as they address issues that include workforce development and public incentives.

RR: What lies ahead for you in retirement? Are you staying in San Antonio or do you have other plans?

It seems that for almost fifty years I have been making plans every single day of my life. Now I find myself in the position of having no long term plans beyond continuing the work we have underway, leaving behind a great team and supporting our board with the transition. Beyond that, I can assure you that time will be spent with a growing brood of terrific grandkids.

San Antonio has been a great place and Tina and I intend to remain here, possibly doing future real estate development work and looking forward to remaining connected and providing support to our leadership and business community.

RR: Thank you for your service to the community, Bruce. Good luck.

Follow Robert Rivard on Twitter @rivardreport or on Facebook.

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