Private Sector Closely Watches Federal Decision to Unload Properties
Jun 14, 2010 3:42 PM, By Denise Kalette, NREI Managing Editor
Many commercial real estate analysts were caught by surprise when President Obama issued a memorandum last week directing federal agencies to dispose of excess government properties as a way to reduce the government’s energy use and emission of harmful greenhouse gases.
Disposing of the excess assets could result in a $3 billion savings to the federal government through fiscal year 2012, according to the memorandum. “For decades, the federal government, the largest property owner and energy user in the United States, has managed more real estate than necessary to effectively support its programs and missions. Both taxpayer dollars and energy resources are being wasted to maintain these excess assets,” the president wrote in the June 10 memo.
The government owns and leases a whopping 354 million sq. ft. of space in more than 2,200 cities and towns across the country, according to the General Services Administration (GSA). The space ranges from federal courthouses to Internal Revenue Service offices and certain port facilities.
For example, the Southeast Sunbelt region uses 41.7 million sq. ft. across eight states. The space includes 140 government-owned buildings and 1,297 leased structures. In all, the offices, courts, labs and other facilities house 93,000 employees. Among the government-owned Southeastern buildings, 10 are Energy Star certified.
The president acknowledged that the federal government has contributed to environmental pollution over the years. “Many of the properties necessary for the government’s work are not operated efficiently, resulting in wasted funds and excessive greenhouse gas pollution,” he said.
Even as the private sector turned to innovative technologies to use energy more efficiently, the federal government increased the number of its data centers, leading to greater energy consumption and operating and maintenance costs, Obama added.
Identifying and eliminating excess properties, including data centers, offices, warehouses and laboratories, will reduce wasteful spending, save energy and water, and reduce greenhouse gas pollution, according to the president.
He directed the head of the Office of Management and Budget to work with the GSA to produce guidelines within 90 days for carrying out the dispositions. Agencies were also required to submit plans to reduce the number of federal data centers by August 30.
Value depends on buildings
“Depending on the type of buildings that they’re looking to sell off, it could be a good thing for the private sector to be able to have some redevelopment opportunities,” says Jim Peck, chairman of Building Owners and Managers Association International (BOMA), and senior director of asset services for broker CB Richard Ellis in Albuquerque.
However, the value to private investors and developers will depend on the types of buildings that are disposed of in various markets, says Peck.
“The GSA has been looking at ways to improve their energy efficiency,” says Peck. The agency’s head of building services, Robert Peck — no relation to Jim Peck — has previously used stimulus money to fund energy upgrades in a number of federally owned buildings, according to the BOMA chairman.
A report by BOMA and the U.S. Green Building Council in late April also concluded that the Obama administration already has the authority and ability to use more than 30 existing federal programs to improve energy efficiency in private sector commercial real estate structures without new legislation.
Dangling financial incentives
Some of the government buildings that will be sold into the private sector could become candidates for renovation and upgrading. “We’ve long been an advocate of improving the energy efficiency in our buildings,” says Peck of BOMA and CBRE.
“It makes a whole lot of sense from a business standpoint, as long as there are some incentives behind it,” continues Peck. “Our big concern has always been that the federal government likes to mandate things, and mandates just don’t work. Incentive-based efficiencies are always the way to go, whether it’s a tax credit or some kind of rebate on energy retrofits.”
For instance, one current federal program offers a tax credit of $1.80 per sq. ft. to building owners for certain major renovations, he says. Other incentives are available for energy-efficient lighting and heating-and-cooling system upgrades.
But many of the buildings many not necessarily be good investments, even with tax credits and other incentives. “It could be a really old building in a market that’s not doing terribly well. It really depends on the type of building and where it’s located.”
Still, it’s safe to say that the commercial real estate industry is waiting with interest to see the government’s list of properties for sale, Peck says. “Once that’s out you’ll be able to see what could be done.”
Close scrutiny
The buildings’ energy performance will affect their sales, says Theddi Wright Chappell, national practice leader for green building and sustainability at Cushman Wakefield in Seattle. “The manner in which these buildings get assessed will have a lot to do with building performance. How efficient are they?”
Shedding the properties will only shift the problem of greenhouse gas emissions to a different owner, she says. So, unless the properties are modified and upgraded, their pollution problems will continue, if they are used by commercial rather than government tenants.
“I know of investment funds that are already making acquisition decisions based on a building’s energy efficiency or carbon footprint,” says Wright Chappell. “I think depending on who the investor is, he or she is going to look at what it will take to make those buildings competitive. Investors are going to say, ‘What will it take to get this building at the level it should be operating at?’”
