Hard Sell

Chris Flynn

 

The ribbon-cutting in Brooklyn, N.Y., last fall drew a bevy of VIPs. Mayor Michael Bloomberg, Democratic Reps. Jerrold Nadler and Nydia Velazquez, and General Services Administration executives joined local bigwigs in October to break ground on the remaking of Federal Building No. 2, a century-old Navy Department warehouse in the Sunset Park portion of Brooklyn’s changing industrial waterfront.

The 1 million-square-foot structure, after standing empty for a decade and costing the government tens of thousands of dollars per year in upkeep, had finally been sold to a private developer working through the New York City Economic Development Corporation.

The gain for Uncle Sam: $10 million in cash. The gain for the local citizenry: 425 construction jobs, a projected 1,300 manufacturing and retail jobs, millions of dollars in tax revenues, and a shot in the arm for the revival of a long-stagnant neighborhood.

“GSA has taken a nonperforming asset and facilitated the private sector to build a state-of-the-art industrial center,” said Regional Administrator Denise Pease at the groundbreaking. “Essentially, this is what public-private partnership is all about.”

The sale of the warehouse was not without hitches; the 2008 financial crisis, for example, put off plans for making it a high-tech park. But the deal qualifies as a victory in a federal effort begun under President George W. Bush and intensified under President Obama to get the government to “stop sitting on its assets,” in the phrase used by some Republican lawmakers.

Some 12,000 available domestic federal properties and 2,000 more overseas are going begging on a White House database compiled with help from GSA. Many will require years of marketing and negotiations to land a willing buyer. An example is the Curtis Bay Munitions Depot outside Baltimore. The property might interest some Maryland freight transport company, but first it must be cleansed of environmental pollutants.

When Obama issued his June 2010 memorandum pressing for the sale of unneeded federal properties, he set a goal of $3 billion in savings by Sept. 30, 2012. Not likely. 

There has been progress, however. GSA in February announced it had finally found a buyer, named Donald Trump, for the half-occupied Old Post Office Pavilion in Washington. But the larger sales campaign has been slowed by an array of obstacles affecting the fate of federal property. 

“The process is complicated and burdensome for many federal agencies, and there are several factors that preclude agencies from disposing of unneeded properties,” says Sen. Tom Carper, D-Del., who has introduced a bill to streamline the steps involved. “Many of the properties are older and in poor condition and require significant funding for repairs to restore the property so it can be sold.”

Advocacy groups for the homeless by law get rights of first refusal when certain buildings go up for disposal. The historic preservation community gets a say, as do state and local officials and nonprofits, in the 750 markets in which the federal government owns property.

Some properties are simply white elephants, past-their-prime eyesores for which there is scant market demand even if an agency were to bring in the world’s greatest real estate sales team. Others, by contrast, could benefit from macro market conditions. “Many of the areas where federal buildings are held are in major metropolitan areas, like Washington, D.C., which have seen great gains in the commercial real estate market in the past few years,” Carper says.

Then there are the legislative politics. Congress’ reputation for gridlock has prompted several proposals to create a federal property disposal board modeled on the Pentagon’s Base Closure and Realignment Commission that would submit take-it-or-leave-it packages of properties for congressional approval. On Feb. 7, the House passed such a bill championed by Rep. Jeff Denham, R-Calif., who pushes the superiority of private sector property expertise over that of government agencies, “which have a horrible track record,” he says. 

But Denham’s bill has stalled in the Senate due, in part, to resistance from the Office of Management and Budget, which has proposed its own version of a civilian property board. The two differ over whether Congress or the executive branch should control proceeds from the sales. A second House-passed bill from Rep. Jason Chaffetz, R-Utah, would require GSA to keep a rolling list of the top 15 priority properties for sale.

Yet another approach, introduced March 8 by a bipartisan group of senators led by Carper, would rely not on an appointed private board but on individual agency property offices that OMB and Congress oversee.

Interviews with federal officials focusing on two typical properties dramatize the frustrations in the process of selling excess inventory—even without the political maneuvering. 

But politics will never be removed from the outcomes. “We all know local politicians and leaders love to preside over ribbon-cutting ceremonies,” said Jeffrey Zients, Obama’s acting budget director, during a May 2011 conference call. “Getting rid of property is a much less rewarding experience. That’s why the government owns thousands of properties it doesn’t need.”

Properties vs. Assets

As the government’s real estate manager, GSA likes to spotlight its successes in disposing of unneeded federal office space. The agency has returned almost $244 million in receipts to the Federal Buildings Fund since 2005, according to Robert Peck, who was recently ousted as commissioner of the Public Buildings Service amid GSA’s conference scandal. “In fiscal years 2010 and 2011 alone, we disposed of a total of 88 vacant or underutilized properties,” he said, at a Feb. 9 House hearing, noting that GSA was able to “avoid $73 million in anticipated repair needs and operation and maintenance costs.” 

GSA’s national vacancy rate, Peck added, is a mere 3.4 percent compared with the private sector’s national
average of 17.4 percent.

But the “sitting on our assets” problem is broader.

The government owns more than a million properties nationwide, and according to Carper, 24 agencies collectively spend more than $1.7 billion a year to keep up 14,000 labeled as “excess” and 45,000 considered underused. That’s why the federal program for real property management has remained on the Government Accountability Office’s high-risk list for nearly a decade. 

While waiting for Congress to act on property disposal procedures, OMB in May 2011 established the Real Property Advisory Committee. It comprises three senior real property officers and four chief financial officers from major agencies who work with the OMB controller and the GSA administrator to reconfigure inventories across agencies.

What complicates the sales effort is that many so-called properties are actually smaller sets of “constructed assets,” in real estate parlance. That might mean sheds, roads, empty warehouses, guard rails or utility poles, explains Ralph Conner, GSA’s director of Real Property Utilization. In a private sector inventory they would total thousands of salable items.

There is also room to disagree over what constitutes unneeded property. “ ‘Excess property’ is a term of art for us,” Conner says. It refers to “GSA land formally reported to us by an agency using Form 118, which allows us to develop a real estate strategy to reposition it” after entering it in the federal real property profile. 

That profile is the basis for the White House list of broad excess properties, but it also lists agency inventory at the constructed assets level. Then GSA performs due diligence to make sure the property meets certain criteria and “screens it against other federal needs,” Conner says, before it is switched from excess, meaning it might be offered to another agency, to surplus, which means it can be sold.

What is not a term of art, Conner adds, is “underutilized.” The GSA headquarters building where he works, for example, is 66 percent underutilized, but that’s temporary because it’s under renovation. These sorts of unique circumstances create more complications.

The Curtis Bay Challenge

Before sealing the deal on the Brooklyn waterfront, GSA and its regional staffers endured years of fits and starts. As Conner recalls, the New York City Economic Development Corporation “wanted to acquire it, but was afraid a public sale would bring in a personal storage facility when they wanted something more jobs-intensive.”

Then local planners lined up a developer that envisioned a dot-com incubator, “but the economy tanked and the equity partner had no money available,” Conner says. So the New York contingent asked GSA for more time. In 2011, the wait paid off with an investor cooking up plans for a light manufacturing center.

Hopes for selling the depot at Curtis Bay hinge on a different set of problems. Since GSA took over the property from the Army in the early 1980s, soil contaminants were discovered from decades of strategic materials stockpiling. “Anytime we’re transferring a property, whether giving it away or selling it at the top of market,” Conner says, “we have to put a warranty in the deed that speaks to its environmental condition.” 

According to the federal Superfund law, in the public sector the polluter pays for cleanup. “Every piece of property we transfer has to have a covenant that says all remediation necessary to protect human health and environment has been completed,” he says. With risks as vivid as leaching in soil near drinking water or a navigable body of water, Conner adds, “it’s a pretty high bar to get over.” But the bar would be even higher if instead of paving over the site for industrial use it was intended, say, for some-one “who would live on the property and grow vegetables,” he says.

GSA’s preliminary investigation of the property, its history and the few available records uncovered irregular mounding in fields from storage tanks, piles of 55-gallon drums and evidence of sump pumps in the motor pool area, and drainage problems near a laundromat. Also of concern was the possibility of unexploded ordnance.

Under the “polluter pays” principle, the Defense Logistics Agency was deemed responsible for the cleanup. In addition, GSA does not deal with weapons ordnance. The good news, Conner notes, is DLA and the Defense Department acknowledge as much. 

“It would be a different story if DoD were denying any obligation,” he says.

Kevin Kivimaki, an environmental protection specialist for the Defense Logistics Agency, says his shop has been working with GSA since 2010, along with the Maryland Department of the Environment, which has been monitoring Curtis Bay for decades. GSA spent 18 months and pulled together thousands of pages on what’s known about the property and what remains to be learned, he says.

After GSA performed an environmental survey and analysis, DLA prepared a scope of work to perform a remedial investigation and feasibility study. Results were incorporated in a request for proposals for a contract, which was awarded in April. 

“There’s been close coordination with GSA throughout the process, and they’ve been very cooperative,” Kivimaki says. Funding is at the ready.

The cleanup schedule will depend on what the survey turns up, according to Kivimaki. “The contract calls for removal of any contingencies discovered,” he says. “They could find nothing and do it in two years, or they could find persistent material that might take a much longer time.”

DLA is aware that the Maryland Transportation Department is considering buying the property, Kivimaki says, “and we would like to prepare it to be reused to its best advantage.”

Katie Parks, assistant director of the Office of Real Estate at the Maryland Department of Transportation, said her agency has been watching progress at Curtis Bay since 2007, when GSA published a notice of surplus and her office responded with a letter of interest. The state and federal agencies have worked in a “spirit of cooperation,” she says.

Though it’s premature to discuss funding, Parks says her agency “is exploring opportunities to develop this property into a warehousing and distribution facility.”

From GSA’s point of view, any legitimate buyer is fine. “We’re not in the ‘get rich’ business,” Conner says. “We’re in the ‘fair deal for the taxpayer’ business.”

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