Depending on Who's Counting, U.S. Owns up to 59,000 Buildings it Doesn't Need and Now Would Like To Sell
As far as rummage sales go, the federal government's proposal to set up a board to sell its vacant and underutilized
commercial real estate may rank as one of the largest ever proposed. But like any white elephant sale, it could be a mammoth undertaking with uncertain results for the sellers and the buyers.
The U.S. General Accounting Office and the Office of Management and Budget are backing President Obama's proposal to create a board to expedite the sale of U.S.-owned real estate. The proposal is part of his overall budget plan for 2011, which is still being hotly debated in the halls of Congress.
According to Jeff Zients, federal chief performance officer and the deputy director for management at the Office of Management and Budget, the federal government is far and away the largest property owner in the country with a portfolio consisting of 1.2 million individual properties that cost more than $20 billion a year to operate and maintain.
"The government doesn't need all these properties," Zients said at a White House briefing this past week. "In fact, 14,000 of these properties have already been designated by agencies as excess. There are another 55,000 properties, beyond the 14,000, that have already been identified as underutilized, as opposed to excess -- meaning there's potential to consolidate those or sell those as well."
According to Zients, the U.S. could return $15 billion in profits and expense savings to its coffers by selling off these assets.
Prior to Zients' briefing, the GAO issued a report highlighting opportunities for the government to save money with specific recommendations for eliminating duplication and increasing efficiencies.
Already, the two reports demonstrate one of the fundamental problems the government could face in its efforts to monetize its property assets.
The GAO report tallies 300,000 fewer buildings "and structures" in the government's portfolio -- meaning that much of what the government owns may not be a building but could also be a shed, empty land or a radio antenna tower.
While Zients said the list of properties would be released in the coming weeks, the government building datasets already released include duplicative property listings and rentable building areas, and space availabilities that are significantly different than what CoStar Group updates on a monthly basis.
For example, one dataset of properties controlled by the U.S. General Administration, the largest of the federal government's landlords, contains a listing of more than 23,000 properties. An analysis by CoStar Group found that nearly one in 10 of the entries was a duplicate entry.
In one example by size, the GSA lists the building it owns at 935 Pennsylvania Ave. as being a 1,288,928-square-foot building. CoStar puts the total rentable area at 1,767,671 square feet.
According to the General Accounting Office, the problem of excess and underutilized property is exacerbated by a number of other factors that may impede the government's ability to efficiently dispose of unneeded property.
First, numerous stakeholders, including local governments, private real estate interests and advocacy groups, have an interest in how the federal government carries out its real property acquisition, management and disposal practices. These competing interests, which often view government buildings as the physical face of the federal government in local communities, can build barriers to property disposal.
Second, the complex legal environment has a significant impact on real property decision-making and may or may not lead to economically rational outcomes. GSA's ability to effectively dispose of its unneeded property can also be hampered by its lengthy disposal process, which is legislatively mandated and includes requirements, such as determining whether the property can be used by other federal agencies, for homeless assistance, and for the public benefit.
For example, GSA continues to hold numerous buildings that have been listed as excess for years. The lengthy disposal process may inhibit GSA's ability to achieve cost savings under the Presidential Memorandum by the 2012 deadline.
"The real challenge with the process actually saving money is that, much like with Federal budget cuts, it is always easy talk about cutbacks until those cutbacks impact you or in this case a building in your district," said Chris Macke, senior real estate strategist for CoStar Group.
Zients said the administration's proposal to create a new disposal board, "enables us to cut through the red tape, to cut through the political obstacles, and sell the properties much more quickly and save money much more rapidly."
Instead of trying to sell the empty or under-utilized buildings, CoStar's Macke suggests the more beneficial strategy may be for the government to look at selling its occupied, stabilized assets.
"The government could take a page out of the CoStar playbook and enter into sale-leasebacks, especially on certain, non-mission critical federal buildings," Macke added. "The combination of a market starved for stabilized assets with credit-worthy tenants and low interest rates has resulted in very favorable pricing that the government could take advantage of."
"The President's proposal to Congress will establish an independent board of experts that will expedite disposal of unneeded properties and identify opportunities to consolidate agency offices," Zients said. "The board will present to Congress recommendations on bundles of properties to be voted on in an up or down manner."
"While we're waiting for Congress to pass the legislation we're continuing to sell properties and consolidate our real estate."
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