Federal buildings disposal board, nearing its end, still sees plenty of work ahead

When Congress saw a need for agencies to sell or dispose of underutilized federal buildings and land faster, they passed FASTA  — the Federal Assets Sale and Transfer Act.

Under the 2016 legislation, a small, independent agency faces a gargantuan task — to help the federal government shrink its portfolio of real estate, which currently contributes to more than $16 billion in annual costs.

The board began its work in 2019, but the scope of its mission transformed at the start of the COVID-19 pandemic. Agencies, with a telework-savvy workforce, are rethinking their long-term office space needs — even as the Biden administration is calling on federal employees to return to the office more often.

Congress, the General Services Administration, and the Office of Management and Budget are doubling down on efforts to reduce federal office space.

PBRB members see a once-in-a-generation opportunity to shrink the federal real estate footprint, and are calling on lawmakers to extend its expiration date past May 2025.

But so far, the board recommendations have generated hundreds of millions of dollars in revenue — but not the billions that Congress envisioned — from the sale of 10 federal buildings.

For context, the 24 largest agencies disposed of nearly 2,000 federally owned buildings in fiscal 2022, reducing more than 11 million square feet of space — and bringing in more than $35 million in profits.

‘There’s a lot of great work that still needs to be done’

Board member Talmage Hocker, founder of a private real estate firm in Lexington, Kentucky, told Federal News Network that extending the board’s tenure would benefit GSA, as it looks to accelerate sale and disposal efforts.

“There’s a lot of great work that still needs to be done. The board was put together so that we could bring together best practices from both public and private sector, and create a method that we can dispose of real estate,” Hocker said. “We’ve identified a lot of things that work well, and we’ve identified a few things that we believe could use a tweak. And if we can get them,  the Public Buildings Reform Board can be a wonderful agency, and create a lot of income for the government.”

The board is working on its final round of recommendations. They’re due to OMB by the end of this year. Hocker said the board looked at more than 50 federal properties.

“We’re going to see some more high-value assets, even though it’s not called the high-value round,” Hocker said. “We’re going to continue to look for some larger properties, where there’s a major interest. We don’t believe that people get excited about a little courthouse in a small, small town, that might sell for half a million dollars or $200,000. That’s just not what this legislation was designed for. And so, we’re going to continue with larger projects.”

Paul Walden, the board’s executive director, said part of the challenge is understanding what properties will remain underutilized as the Biden administration is bringing federal employees back to the office more often.

“It’s really all over the board, from the agencies I’ve talked to. Just within one department, one bureau has a mandate [that] you only have to be in the office one day a pay period. Whereas another bureau says, ‘No, no, you have to be in the office three days a week.’ So there’s no real consistency among departments. The jury’s still out on what that looks like. Agencies are still trying to wrestle with that,” Walden said.

There’s also some unanswered questions about how often federal employees are expected to work in the office in the years to come — and whether those expectations will change substantially under subsequent administrations.

“Do we, as a government, want to play a hand and tell everybody they don’t have to come back? And therefore, the retail goes out of business. Are we ready for these towns to become ghost towns? And are we ready for the loss of tax revenue.? Hocker said. “I’m all for telework … I’m not sure that every position can be handled from home. And it’s an issue that’s going to be studied for a long time before we get to the right answer.”

GSA efforts to sell federal buildings — with or without FASTA

Dan Mathews, a former commissioner of GSA’s Public Buildings Service, and the PBRB’s newest member, said that for momentum to continue these efforts, GSA, OMB and the board all need to make right-sizing federal property a top priority.

“It’s such an obvious issue. It’s so simple for almost anyone to understand that an increased remote work and telework posture has emptied out these buildings. And so, now they need to realign the portfolio,” Mathews said. “It’s just so self-evident that they’re really going to drive that forward.  we’re going to see a lot of change over the next year. If the agencies don’t start putting those types of plans forward, Congress is going to do it for them.”

However, another former PBS commissioner, Norman Dong, now a partner at the real estate firm FD Stonewater, said it’s unclear what FASTA if anything, has done to expedite GSA’s process for identifying and selling underutilized federal real estate.

“I’ve been underwhelmed by the collective federal response here,” Dong said. “We’ve heard from different folks a million reasons and excuses why these buildings can’t be disposed of. You heard COVID. You heard the board not having a quorum. It’s one thing after another, and there’s always an excuse, in terms of why it’s not getting done. And it’s so easy just to talk about the difficulties in disposing of federal property. Yeah, it’s hard … but by no means is this an insurmountable task.”

Flavio Peres, GSA’s assistant commissioner of real property disposition told Federal News Network in a statement that a majority of the board’s 12 High-Value Asset round recommendations were already in GSA’s disposition pipeline before PBRB made its recommendations.

However, Peres said FASTA provided funding that expedited the disposition timeline for several of those projects.

“That funding was critical, because when an agency has funding to relocate from an asset that no longer meets its mission needs, the timeline for preparing an asset for disposition can be accelerated significantly,” he said.

Peres said that over the past five years, GSA has completed more than 500 disposition projects across the federal government. GSA’s data includes properties that have been transferred to another federal agency, transferred at no cost to eligible public bodies or nonprofit organizations or sold at fair market value through negotiated sale or competitive public sale. That disposal work led to $1 billion in proceeds, and the disposal of more than 12 million feet of real estate.

Since 1987, GSA has transferred over $3 billion in federal properties to new owners. About one-third of those properties went to state or local governments, or to nonprofits.

Dong said GSA’s track record shows that it’s more than capable of identifying and selling underutilized real estate — with or without FASTA.

For example, Dong pointed to a decade-long experiment to make better use of federal real estate that finally wrapped last fall.

The Transportation Department last September opened its doors to the new John Volpe National Transportation Systems Center in Boston.

The project began in the fall of 2016, when GSA reached a deal with the Massachusetts Institute of Technology. The university agreed to build the new Volpe Center, in exchange for letting it redevelop the rest of the 14-acre federal research campus.

“We already have evidence of the federal government being able to do this. There’s already demonstrated ability to execute difficult and complex disposal and exchange transactions,” Dong said.

‘Real property sales are difficult’

Mathews said that for all the challenges the PBRB is facing, the board — and the FASTA legislation that created it — helps fast-track the sale and disposal process.

Mathews said FASTA waived a lot of the existing disposal laws, especially with the high-value asset round, to put properties up for sale, without having to see if a state or local government – or another federal agency – wants to use the space.

“Real property sales are difficult. That’s why, when I was in Congress, we actually drafted that bill — because it’s hard to sell. There’s so many laws that come into play that encumber properties, that cover what can be done with the property afterwards. So it’s a tall order,” Mathews said.

Properties sold under FASTA are exempt from the 1987 McKinney-Vento Act, which requires the federal government to determine if underutilized federal properties are suitable for homelessness assistance, before putting them up for sale.

“It absolutely made a difference. It’s helped sell numerous properties,” Mathews said.

He added that all 12 of the PBRB’s recommendations would have sold sooner, if GSA had heeded the board’s recommendation, and taken a portfolio approach to selling some of the properties — meaning GSA would sell some of the properties as a package deal.

“They took every property individually to sale — a much slower process. And it hasn’t worked, frankly, that well,” Mathews said. “Some properties still haven’t sold. They took a really important tool off the table, and just decided to go in alone. And that created a lot of frustration.”

As far as agency reluctance to offer up underutilized property, Mathews said they face challenges relocating federal employees from a property that’s marked for disposal.

“Agencies have to spend some money to go off of it. And the other big lesson is there should be some proceeds going to the agencies that are relocating sooner in the process rather than later in the process,” he said.

Peres said one of the biggest challenges is the lack of both incentives and resources for agencies to identify and prepare properties for disposal.

“To be successful, this transition will require upfront investments to improve building conditions in the assets that are long-term holds within GSA’s portfolio, and to move customer agencies out of the buildings that we intend to move towards disposition,” Peres said.

If everybody’s in charge, nobody’s in charge

Dong said that getting rid of federal real estate comes down to basic management principles — such as clear authority, clear accountability and a sense of urgency — and that the FASTA legislation added new, unfamiliar gears to the sale and disposal process.

“When we look at the FASTA legislation — and I know that hindsight is 20/20 — I actually think it made things worse,” Dong said.

“When GSA does a federal construction project, there’s a clear project management discipline that they bring, where there’s a project schedule, there’s a project timeline, there’s a project budget, and they do a pretty good job,” he added. “When they’re building a new courthouse, for example, they do a pretty good job of staying on time and within budget because you have that project management discipline that GSA has traditionally brought to these federal construction projects.”

However, Dong said that the same discipline doesn’t exist yet when it comes to getting rid of federal real estate.

“With these disposal projects, who knows when it’ll get done? You don’t have that same clear sense of what’s the plan and what’s the timeline. And as a result, if things get done, it takes way too long,” Dong said. “The government needs to send a message that it’s serious about getting something done. And that starts by putting some meaningful points on the board sooner rather than later — it’s been more than seven years.”

While FASTA and PBRB haven’t accomplished everything Congress envisioned, Dong said there’s room for improvement in GSA’s sale and disposal process.

If Congress decides to revisit FASTA, or pass new legislation to reform the way agencies get rid of excess federal property, Dong said measures to put clear accountability in place will make a difference.

“Who’s in charge of getting it done, as it relates to this task? It seems everybody’s in charge, so nobody’s in charge, and what you’re lacking here is a single throat to choke _— somebody who has both the authority and accountability to make things happen,” he said.

Next steps for PBRB

As lawmakers contemplate the next steps for the PBRB, Mathews recommended Congress pass legislation giving the board more authority and more resources to do its job.

“The board needs more authority to be effective. Right now, most of the decision-making power, frankly, lies with OMB. And so, if you have OMB fully invested in disposing of properties,  the way it’s set up now can be very successful. But if that’s not a real high priority for OMB, then it makes it very difficult for the board to actually move forward. So, you’ve got to take the board you have and to give them more authority over the decision-making process right now to make recommendations.”

Mathews said he also urges Congress to waive the Historic Preservation Act in the FASTA Reform Act.

“That is a real obstacle. It makes it unclear what a buyer can do with a lot of federal properties, because a lot of them are old, and that just creates uncertainty. The value of a property is really determined by the rights of what you can do with it. So, if you don’t know what you can do with it, then you don’t really know what it’s worth. So, it devalues the property, frankly,” he said.

While agencies have been reluctant to give up underutilized office space, Mathews said belt-tightening from Congress and increasingly austere annual budgets over the coming years might force some agencies to make some tough choices.

“If you’re an agency and you’re sitting on real estate that is 10% occupied, and now you’ve got an annual budget that you can’t fulfill all your priorities [with], you have to make some choices. What do you want to do? Do you want to cut your rent budget? Or are you going to want to cut your salary budget?  Most agencies will pick their people over empty buildings,” Mathews said.

An uncertain future

Current and former GSA officials say opportunities abound for agencies to give up office space they no longer need.

GSA Administrator Robin Carnahan told the House Oversight and Accountability Committee last November that her agency is  “laser-focused on right-sizing the federal footprint.”

With agencies — including GSA — embracing the benefits of a long-term hybrid and remote workforce, Carnahan said her agency sees an opportunity to reduce the government’s real-estate footprint by up to 30% in the coming years.

“Right now, agencies across the government are rethinking how much space they actually need. And while GSA doesn’t make space decisions for agencies, we do work closely with them to leverage our team’s expertise to help agencies plan and whenever possible to downsize,” Carnahan told the committee.

GSA, however, also warns that a lack of funds to repair or maintain government buildings is limiting the opportunities it has to sell underutilized real estate.

Former PBS Commissioner Nina Albert told the Senate Environment and Public Works Committee last September that agencies, over nearly the past decade, missed as many as 120 opportunities to consolidate federal office space, “representing hundreds of millions in annual savings that have been missed due to lack of available funding.”

While agencies face opportunities to right-size the federal government’s property, it remains unclear what kind of space the federal government will prioritize in the future.

Mathews said the current federal building portfolio is roughly split in half, between owned and leased space.

“What’s it going to look like, five years from now? Or 10 years from now? Is it going to be 80% leased and 20% owned? Or is there going to be 20% leased and 80% owned? Or some number in between?” Mathews said. “That’s going to have a really big impact on [each] agency’s mission. — on the amount of capital the government is going to have to commit to federal real estate, because renovating buildings is really expensive. Or are they going to turn to the private sector to get higher quality buildings with shorter commitment terms through leasing? That’s going to be a really important strategic decision that GSA is going to have to make sometime soon — how do they get to a portfolio, in five years, that is smaller, higher quality, meets the agency’s requirements, and is financially sustainable for GSA? That’s a huge challenge.”

To further complicate these efforts, Hocker said the long-term prevalence of telework remains unclear — both in and out of government.

“We really don’t know, [and] the federal government’s in the same spot right now. We don’t know what commerce is going to do. We certainly don’t know what’s going to happen in the next administration, whenever that is,” Hocker said. “Do they share the workspace? Do we create workstations that are modular, so people can bring their computers in? And who pays for that? There’s a lot of questions that are being studied right now, and until we get these answers, we’re not going to have our arms around space utilization and the need for real estate.”

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