Congress will revisit federal real property reform again this session. Rep. Pete Sessions (R-Texas) is expected to introduce a bill this summer that would give the property professionals at the General Services Administration (GSA) more flexibility in how they manage the federal government's real property portfolio. While owners and managers of private property have a wide array of asset management and financing tools to assist them, under current law the GSA is hamstrung by federal government scoring and budget constraints that prevent it from:
exchanging or transferring property with other federal agencies;
entering into agreements with non-federal entities to exchange or sell under-performing property in order to acquire more suitable replacement property;
subletting government leased property when a federal tenant acquires more suitable space;
engaging in public-private partnerships or other business arrangements to use private sector capital and property/management expertise to redevelop or improve federal holdings; or
authorizing agencies to retain the bulk of proceeds from real property transactions to meet agency capital needs.
The result is that the federal government, which owns and leases approximately 3.3. billion sq. ft. of building space worldwide that is worth about $328 billion, retains buildings in its portfolio longer than a for-profit company would. According to BOMA's Experience Exchange Report, the average age of public buildings is 48 years, compared with 25 years in the private sector.
These buildings are retained, not necessarily based on sound business practices, but because antiquated federal budget and scoring rules make it undesirable for the GSA to sell the properties. In many cases, the GSA finds it necessary to renovate a building prior to its sale by conducting environmental remediation or needed site work. Such renovations deplete the limited funds appropriated for renovation. In addition, upon the sale of that property, proceeds are not available for the GSA to use for other projects, but revert back to the Land and Water Conservation Fund. The GSA is not even able to recoup the money it invested in the property prior to sale. The result is that these types of transactions are pushed to the bottom of the priority list and the decision is made to hold on to the property even longer.
What's the Payoff?
Passing federal real property reform is important for all taxpayers. After all, it is the taxpayers who pay more because GSA property professionals don't use current asset management tools to improve the performance of the federal government's properties.
In April, I had the opportunity to testify before the House Appropriations Subcommittee on Transportation, Treasury and Independent Agencies about cost drivers affecting building operations, renovation and new. I emphasized that the GSA needs flexibility in federal real property development and management, including planning, acquisition, use, maintenance and disposal of assets. I advocated that subleases, transfers and exchanges of real property should be allowed in cases where it would result in the agency receiving fair market value.
Public-private partnerships should also play a role in federal real property management. My organization BOMA International generally supports the “leaseback” concept, in which the government would have a private entity take over economic control of a building and renovate it. The government would have a first-refusal option tothe building back for a rent that includes a return on building improvements. Similarly, the government should consider leasing buildings outright to the private sector. Obviously, any such arrangements must be mutually beneficial to the GSA and to the private sector partner.
A Path Once Traveled
The legislation anticipated this summer will likely resemble the Federal Property Asset Management Reform Act, offered by Rep. Sessions during the 107th Congress. The Federal Property Asset Management Reform Act would have allowed the GSA to apply current asset management principles, establish performance measures and maintain a database of federal real property. It would have allowed the exchange or sale of real property, subleasing, outleasing and public-private partnerships. The House Committee on Government Reform reported favorably on the Federal Property Asset Management Reform Act during the 107th Congress, but the bill stalled when it was referred to the House Committee on Transportation and Infrastructure.
BOMA International knows firsthand that the GSA and other federal agencies have highly educated and capable property professionals on staff, as many of them participate in BOMA's training opportunities. We believe it is time that these professionals were given the tools and flexibility they need to do their jobs effectively.
Larry F. Soehren is the president of the Washington, D.C.-based Building Owners and Managers Association (BOMA) International and vice president of Kiemle & Hagood.