Local and state governments, along with the federal government, are facing difficult economic times and have been compelled to spend money judiciously. Cities have seen their tax rolls decrease during the weakened economy, and most states are experiencing tremendous budget deficits. Similarly, the federal deficit is the highest it has ever been and is likely to exceed $500 billion by year-end 2004.

The need for specialists who can assist government entities with their real estate is growing. The state of Illinois, for example, is in the middle of choosing a real estate provider. It is looking for a firm to take its real estate in hand and save $14 million by June 2004 and an additional $30 million by June 2005.

Government entities have recognized that real estate is a significant expense. They are looking for ways to reduce expenses, and there is a big push to use real estate more efficiently and wisely.

As businesses in the private sector move to outsource their real estate needs and try to become smarter about managing their real estate, government entities are moving in the same direction.

Government agencies do not have the same kind of expertise and staff resources to manage their real estate as in the past. In many cases, they are severely understaffed.

The bottom line is that government entities, like all private companies, have to make hard choices related to their real estate. They also need help evaluating their real estate and figuring out the best way to handle it. Their needs range from consulting, financial analysis, strategic portfolio management, tenant representation services, acquisition/disposition services and development/construction management.

Even the smallest city has to worry about real estate. Cities often have a variety of real estate properties including courthouses, schools, fire stations and libraries. The real estate portfolio for states and the federal government is even more extensive and often includes laboratories, hospitals, military bases, airports and prisons.

Becoming a Partner

Many real estate firms have special practice groups in place to work with government entities. Real estate providers must apply to the General Service Administration (GSA) to become a preferred vendor. The vendor list, which is also referred to as a schedule, is commonly known as the Federal Supply Service’s (FSS) Federal Accounting Business Solution.

Real estate providers submit their qualifications, services and fees to the GSA, which then evaluates each provider. Once a provider has been approved to be part of the schedule, it can be used by any federal agency for any project.

The FSS streamlines the process for all government agencies to find the appropriate real estate service provider. It also gives them an idea of how much specific projects will cost.

However, establishing a relationship with local and state governments is different from establishing one with the federal government. Each city and state has different methods of choosing its real estate providers, while the GSA, which acts as the federal government’s in-house real estate advisor, oversees the federal government’s real estate.

Typically, cities and states issue requests for proposals (RFPs) for specific projects. At times, states will issue RFPs to manage their entire portfolio — a complete outsourcing assignment. This bidding process allows cities and states to gather ideas and determine the kinds of services they will need.

Special Skills & Services

Working through city, state and federal regulations is often challenging. In fact, the process is daunting for someone unfamiliar with the process.

The best real estate service providers can offer their government clients an in-depth understanding of government process and organization. That is why most real estate professionals who work with government entities have likely worked in a government role at some time in the past.

Most members of our Public Sector Group have experience working with government entities in other capacities. For example, some have military backgrounds and others have worked in city or state positions. In fact, some have worked for the GSA and have a personal appreciation of the challenges with which it deals.

Working with government entities requires patience and a willingness to work through bureaucracy, which requires skill and delicacy. There is a reason why the phrase “red tape” exists, and professionals who work with governments quickly come to both love and hate the quirks.

Additionally, when compared to working with the private sector, it takes a bit longer to get things done for any government. On average, projects take about twice as long to be completed, and the reasons for the prolonged timeline vary.

For example, Congress and the appropriations committee must first approve all federal funding decisions that involve capital expenditures. Other roadblocks include specific rules and regulations related to location, building construction, security and technology. Another challenge is that the GSA recently released new guidelines.

Although most people assume that security is the most important criteria and biggest challenge in evaluating governmental space, the most frequent and common challenge is complying with the American Disabilities Act (ADA).

The ADA requires that all government buildings be accessible and accommodate anyone who has a disability. Mobility is a primary concern, but it also involves break areas, bathroom facilities and emergency evacuations.

Moving beyond the ADA, different agencies have different needs. For example, an agency like the Social Security Administration requires plenty of parking for its locations and must be able to accommodate plenty of foot traffic in and out of the building.

From a security standpoint, many agencies have specific requirements regarding how close a building is to the street or what other tenants are in the building. In many cases, however, governments own their own buildings and can regulate what other tenants share their facilities. In essence, security is agency-specific and cannot be ignored.

Similarly, most government entities rely on technology and require sophisticated telecommunications and infrastructure. And, although cities and states are leading the charge for more environmentally friendly buildings, the federal government also prefers facilities that use sustainable design.

Highest & Best Use

Most federal agencies have limited ability to make their own decisions regarding their real estate. In trying to determine the best use of their real estate, many government entities have embarked on facility consolidation as well as facility and land disposition.

Surprisingly, most governments are exceptionally land rich, particularly the federal government. In general, governments have undergone a real awakening about their land and how valuable it is. As a result, the federal government created the Enhanced Use Lease (EUL) program, which allows government entities to evaluate alternative uses for their real estate.

The U.S. Department of Veterans Affairs (VA), for example, began a new planning process called CARES (Capital Asset Realignment for Enhanced Services) in October 2000. As part of this process, VA healthcare facilities across the United States were evaluated. The agency decided that it would consolidate the Chicago-based VA Lakeside Medical Center and the VA West Side Medical Center.

The Department of VA wanted to determine the best way to manage the integration and consolidation of the real estate. The agency decided to close the 60-year old VA Lakeside facility, which is located in the Streeterville neighborhood in downtown Chicago, and to invest in a new facility nearby. The Lakeside property is now available for redevelopment through the EUL program. The site, which is in one of the most desirable commercial areas in Chicago, will likely end up as a mixed-use development that includes residential, office and perhaps educational facilities.

Hugh Murphy is a senior vice president and regional manager for The Staubach Company’s Public Sector Group in Chicago.


©2003 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.