The U.S. Government wants to dump supply in a weak commercial real estate market.

Recently, the Federal government announced the intent to reduce real estate spend by disposing of 14,000 excess properties. The U.S. Government is one of the largest landlord in the world and I admit that there is a lot of potential to save the taxpayer money. However, is selling assets at a discount in a bad market really a good idea? Will there even be buyers? What is the potential return? While I agree that disposing of thousands of assets and millions of square feet is beneficial, I believe that there is a lot of other considerations. The government owns a LOT of specialized assets that make it difficult to recognize full value (think: DOE laboratories or VA clinics). They also support programs that require operations in remote or specialized areas (think: CBP border stations and FEMA logistics). I would suggest a tiered approach to better recognize value for the taxpayer. It will not have the most immediate impact, but it will arguably offer the best value. The approaches that I would recommend are:

  1. Accommodating future growth in existing space, thereby eliminating more expensive future costs by occupying space with lower retro-fit costs. This requires an extensive internal marketing effort among civilian and military government organizations to share information and work together to realize value.
  2. Selling assets in prime real estate markets that will have immediate returns. This will require coordination with the private sector to align with development pipelines in local communities.
  3. Employing alternative workplace strategies that allow reduction in footprint. Then, activate a strategy such as lease moratoriums to reduce current and future spend.
  4. Create value in remaining asset clusters. The government would have to act more like a master developer to enact environmental cleanup and invest in initial infrastructure to make the properties more attractive to investors. This approach will likely require Public-Private Partnerships (P3) to recognize the full value. Examples of this approach would be Plum Island and many of the Base Realignment and Closure (BRAC) projects.

By following these basic steps, the Federal government can enhance the buyer market, reduce current spend, and generate better returns. I would love to get more thoughts on the issue at hand, so please pitch in with your comments!

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