2013 Federal Property Summit

Bisnow LogoThis morning, Bisnow, hosted its 2013 Federal Property Summit featuring a great cast of speakers including: Dan Tangherlini, the acting (and soon to be permanent) head of the GSA; Dorothy Robyn, GSA’s Public Buildings Service Commissioner; Norman Dong Deputy Controller at the Office of Management and Budget (OMB); and a host of private-sector professionals who specialize in federal leasing. Unsurprisingly, the discussion across all of the panels focused largely on budget constraints, efforts to drive down real estate costs and learning to do more with less. It was essentially a confirmation of everything we reported on earlier this week in our article recapping the recent Freezing the Federal Real Estate Footprint congressional hearing.

In his remarks, Dan Tangherlini noted that the pressure on agency budgets is going to exert itself on federal leasing budgets as well. That will manifest itself as leases expire (and, frankly, it has already begun). The government’s response, increasingly, has been to try and buy more time for planning by executing short-term renewals and Tangherlini appeared to recognize that GSA has to get out in front of the issue. He said “we need to be smarter about what is happening ahead of time…we have to add more upfront time and planning so it’s less of a crisis [at lease expiration].” The challenge is that GSA maintains 20,000 occupancy agreements with its tenant agencies and it is struggling to find ways to harness technology to manage these agreements and plan for the required downsizing, consolidation and/or realignment across the entire portfolio. Given the huge volume of lease expirations rolling in the next 2-3 years, along with the “bow wave” effect of past expirations being rolled forward, GSA will be swamped.

And that might be an understatement because, as Dorothy Robyn pointed out, “the big action will be consolidation.” She noted that the FY2014 GSA budget includes a $100 million request to provide funding for GSA to help agencies plan for greater utilization.  Agencies, she observed, typically do not have budget funds established for this type of real estate planning. This is an area where GSA will need to step in and provide support. Yet, this support will cost money and GSA’s budget request has been cut in recent years, ironically making it difficult for the agency to achieve cost savings. It remains to be seen if the GSA’s FY2014 budget request will survive congressional scrutiny.

To further complicate things, Norman Dong observed that many of the basic planning inputs aren’t tracked by the agencies. In many instances agencies cannot identify the number of employees, contractors, shared facilities and other people and uses that occupy their space. It’s a problem that is sure to hamper GSA’s efforts to review the “Real Property Cost Savings and Innovation Plan” due from each federal Department last month.

Clearly GSA is wanting to shift to a more proactive, planning posture but as panelist Steven Grigg of Republic Properties exclaimed: “How do you plan when you don’t have a budget?  When you don’t have a prospectus?” Good question. GSA–and its tenant agencies–will be fundamentally hampered in their efforts until budgeting becomes clearer.

Often in these muddled environments we search for the one bellwether that–at the macro level–will indicate the true direction the government will take. Right now that bellwether is the federal budget, which is subject to the sequester and has operated largely under continuing resolution since 2010. This fiscal pressure forces short-term triage-style action. Long-term, non-cancellable leases will be victims of this, as will any action that requires agencies to make significant lump sum payments.

As Norman Dong said, “we are operating under a new normal.”  I’m afraid he is right.

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