The GSA struggles to keep a real estate sale program on track

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The General Services Administration has completed two rounds of a three-round plan to sell off unneeded federal buildings. It hasn’t gone all that well. According to congressional auditors, sales took too long and a special recommendation board says it therefore didn’t have the money to discover other buildings to sell. Can this program get back on track? For details,  the Federal Drive with Tom Temin.  turned to the acting director of physical infrastructure issues at the Government Accountability Office, Jill Naamane.

Interview transcript: 

Tom Temin: And this whole process was dictated as a six-year pilot project back in what was it 2016 by Congress called FASTA. Just review for us FASTA and what agencies are supposed to be doing here?

Jill Naamane: Sure, the Federal Assets Sale and Transfer Act, or FASTA, like you said, is the six-year pilot project, it was intended to have three rounds, where properties are identified for disposal. And it included some special features to help address some of the long standing challenges that agencies have had in selling federal real property that’s needed or underutilized. For example, it set up some timeframes and sales targets. It also created this board, the public building reform board that was meant to identify these projects and help make recommendations of properties that can be sold.

Tom Temin: What happened? It took a long time to get those initial sales off the ground. And how does the financing work? Why does it cost money to sell a building as opposed to buy one?

Jill Naamane: Another feature of FASTA is a funding mechanism that is supposed to be self-sustaining. So sales proceeds from one round of sales are supposed to help prepare the next round of properties for sale. So some of the things that this kind of funding is needed for is environmental assessments, historical preservation assessment, sometimes properties are occupied by tenants and so contracts that have to be closed out. Tenants have to be moved, those kinds of things take money to conduct.

Tom Temin: Alright, so what did you discover about how it actually went? You looked at the first round, which I guess concluded in 2019. Did they sell on the buildings? Were they sold on time? What were the issues that came up?

Jill Naamane: Sure, agencies have encountered a number of setbacks in this process. Ten buildings from the 2019 round have actually been sold for proceeds of about $194 million. So that sounds pretty good. But the sales target for that round was about $500 million to $750 million. So it’s below the expected sales target. And there’s still one property from that round, that has not been listed yet. It’s expected to be listed for sale later this year.

Tom Temin: All right, so that’s three years late. In other words, why so little return if people felt these buildings could fetch a half a billion, up to three quarters of a billion? How come they only got $194 million?

Jill Naamane: Right? Well, some of the highest value properties haven’t sold yet. There’s one property that’s still being listed in that last one that hasn’t been listed yet are some of the highest value properties in that first round. And there’s just been a number of delays in trying to get these other properties sold. There was a change in how GSA, the General Services Administration, planned to sell the properties, they shifted the strategy, which contributed to some of the delays. It’s been a long time, maybe longer than expected to do some of those preservation and environmental assessments and coordination with local stakeholders. So all of that’s contributed to the delay. And it’s unclear yet if the process, you know, has met at the maximum value that was expected from the round.

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Tom Temin: And of course, the real estate market kind of weakened in the intervening years because people are dumping properties because nobody’s occupying buildings anymore across all sectors, thanks to the pandemic. And the work changes. Is that fair to say?

Jill Naamane: That is fair, that was actually one of the setbacks that we heard about that contributed to the 2021 round, that round was actually terminated. The number of properties and value of properties, complexity and type of properties that the board recommended was really limited, in part due to the lack of proceeds and delays in the sales from the 2019 round. But we also heard that COVID was the factor in agency’s uncertainty in putting forward properties for sale.

Tom Temin: We’re speaking with Jill Naamane, she is director of physical infrastructure issues at the Government Accountability Office. Would it also be fair to say that the point of this program was not necessarily maximum revenue, but getting things off the government’s books to avoid future costs of maintenance and so on?

Jill Naamane: Yeah, there’s really two goals. Definitely reducing the footprint and reducing excess and underutilized properties, at the same time trying to maximize the sale of those properties. In order to be able to sell more as the self-sustaining funding mechanism was supposed to work.

Tom Temin: And the buildings that sold, were these like dogs that were rundown in terrible areas, or were they prime nice buildings in good areas? Can we characterize them in any way?

Jill Naamane: There’s really a variety a range from some very large campuses and in what could be considered some desirable locations to things like a parking lot. So it was a really wide variety. And one of the things that was really important to this process is communicating and coordinating with some of the local stakeholders and community to understand their wants and needs and the availability of the properties in their communities.

Tom Temin: Therefore, your report is saying that for the third round that you hope GSA will incorporate some of the lessons learned then, and what are the principal lessons they need to inculcate in order to have a successful third round?

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Jill Naamane: We did hear from a number of the agencies involved about some options that could help address the setbacks they encountered. For example, I mentioned the shift in sales strategy, committing to a sales strategy earlier in the process could help reduce some of those delays. That external coordination that I mentioned, is pretty timely, and very important and contributed to some of the properties being on the list taken off the list. So having that really nailed down and understood before the properties are listed is very important. More coordination between the board and GSA, on just understanding how long these due diligence activities might take, could also make sure that the timing is understood and that the properties that have been selected will be able to be sold in the timeframe that’s expected. There could also be things that Congress could do, for example, reexamining those timeframes and deadlines. One thing we heard was that maybe those timeframes weren’t realistic given all the activities that were necessary to conduct. So there could be things that Congress could consider, too.

Tom Temin: When you mentioned sales strategy, what does that exactly mean? I mean, commercial buildings are sold and bought all the time.

Jill Naamane: Yeah, GSA usually uses an auction website to sell properties individually. One of the things that the board was considering and recommending was to use a broker, private sector broker, and sell all of these properties in the 2019 round as a portfolio. So there was some planning and consideration of that strategy. But it was later decided that might not really maximize the value. And given the differences in time frames for those due diligence activities between the different projects, GSA determined that was probably not the best way to go.

Tom Temin: Probably somebody would complain that they had to pay a commission. And that would be a political issue. You paid 6%? Briefly, do the agencies whose buildings are actually being sold, or at least that might be GSA buildings, but the agency occupying them. Do they have to agree to move out or give up that property?

Jill Naamane: Yes, that is part of the process, the normal process that agencies would identify excess properties on their own. But having the board in the FASTA process, the intention was to really think more creatively about how federal properties are used and what agencies need and considering things like consolidating agencies from multiple buildings into one federal building, for example, the idea was for the board to try to be a little more creative in the process.

Tom Temin: And what’s GSAs reaction? I guess, OMB has a measure and all of this to what’s the reaction to your findings been so far?

Jill Naamane: Well, the agencies did agree that there could be lessons learned. And we thought that GSA was best position to lead a coordinated effort to consider what lessons should be learned and report those to Congress. And they agreed with our recommendation and had really been considering some lessons learned on their own. But we thought it was important for there to be a really coordinated efforts so that each of the different perspectives of OMB, GSA, the board could be gathered and considered together to figure out what’s the best course forward that could be helpful for looks last round, or even future disposal efforts.

Tom Temin: And FASTA did set a six-year process for all of this. Does Congress need to I guess you’d call it reauthorize or refresh that law, just so that they have more than six years because it’s gonna end up taking more than six years.

Jill Naamane: Yeah, the FASTA is set to expire after that final round in 2024. That’s why we thought that these lessons learned if FASTA isn’t renewed in some kind of way. We thought it important to consider these lessons learned not only in the context of FASTA. But how what we’ve learned from FASTA could inform the usual disposal efforts going forward.

Tom Temin: Jill Naamane is director of physical infrastructure issues at the Government Accountability Office.

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