Maybe you missed it in the news (there wasn’t a lot of fanfare or press about this), but last week President Obama issued a memo ordering federal agencies to cut $8 billion worth of building costs by the end of the 2012 fiscal year.
Disposing of unneeded federal property, ending unnecessary leases and consolidating duplicate assets will save taxpayers $3 billion. The remaining $5 billion will come from cost savings through BRAC (Base Realignment and Closure).
The Federal Government is the largest property owner and energy user in the country, with an inventory that includes 1.2 million buildings, structures, and land parcels. This includes 14,000 building and structures currently designated as excess and 55,000 identified as under- and not-utilized. Currently, Federal agencies operate and maintain more real property assets than necessary, unnecessarily raising costs to the taxpayer.–Peter R Orsag, Director of OMB
What kind of time frame are we looking at? Obama told federal property managers to identify excess or underused locations by August 30. The properties identified could possibly be “transferred to other agencies in need of space; donated to colleges, parks and hospitals; or sold to private owners.”
What implications could this memo have in the commercial real estate market? Oh, I can think of a few biggies! And there might even be a few opportunities real estate agents and brokers can take advantage of.
Tenants, check those leases
If you are a tenant in a government-owned building, pull out that lease. When you signed it, you probably never dreamed Uncle Sam would sell the place. Now you have to be prepared as to what might happen, if your building is on the auction block.
What does the landlord have the right to do (or not do) in case of a sale? What are his rights when it comes to canceling or renegotiating your lease? You just might be asked to leave on short notice! Think it cannot happen? Have you ever read a government lease? They usually hold most of the cards. Frequently it is sign or don’t get the space, when we’re dealing with government-owned properties, so now you have to prepare for the worst case.
Landlords, prepare to lose government tenants
Besides selling off excess inventories, in the same memo Obama ordered the agencies to find ways to cut building and energy costs. He wants them to consolodate uses in some facilities, cutting the government’s costs in the process and making them “greener” too, making the environmental footprint smaller. The memo specifically targets duplicate assets such as data centers, that could be trimmed.
“The federal government experienced a substantial increase in the number of data centers, leading to increased energy consumption, real property expenditures, and operations and maintenance costs.”–President Obama
That means if you have a current government tenant in your own building, they may be looking to renegotiate or cancel their own lease. They may be either downsizing or bringing in new entities to share the space.
Telecommuting “cool” with Uncle Sam
The memo requires more efficient use of remaining real property assets, through saving energy and water, and reducing greenhouse gas emissions.
The government’s ultimate solution may be to have more people working from home and telecommuting, or “hoteling” (workers sharing work spaces) to conserve space, energy and rent costs. Consolodating data centers and eliminating duplication, combined with telecommuting would make sense.
It looks like telecommuting will be the cool thing to do, as agencies are urged to make more use of working from home. If so, it won’t matter as much where government employees live.
More houses to choose from / cheaper options
They can live farther from their agency’s main office and choose a wider range of housing than they might otherwise be able to afford. If someone could buy a $600,000 townhome on the outskirts of Washington, DC, and a $400,000 similar home with a 1.5 hour commute, but a $200,000 property with a 3 hour commute, which do you think they might choose — if they are a telecommuter who maybe goes to the office once or twice a month for meetings?
I have cousins outside the D.C. area who just drool over my 2-acre “estate” while they’re in smaller homes on a footprint, that cost two to three times what I paid for my piece of rural Pennsylvania. My little country home looks pretty good in that comparison, and I’m only 2.5 hours north of D.C.
As real estate agents and brokers, we could market to a wider circle of buyers, if the telecommuting craze takes hold, as where you live physically becomes less and less important.
Investors, get your checkbooks ready
And finally, the most obvious category of “those who should be paying attention to this memo” are the real estate investors. Federal courthouses, IRS offices, warehouses, and more will soon be ready for you to buy.
The locations of the properties, along with the amount of work needed to rehab or reinvent the buildings for their next use, will dictate the value of the properties, same as in any commercial transaction.
Getting rid of energy hogs
The majority of the properties likely to be identified will be energy hogs, and that will affect their resale value. Tax incentives may be offered as well, to encourage rehabbing and upgrading to energy efficient status. Otherwise, if the properties are purchased and not upgraded, Obama’s program will only shift the energy hog from the public to the private sector, and not cut energy use as intended.
It should be an interesting summer in Washington, D.C. for sure!Photo courtesy Elegant Machines via Flickr