Financial Condition of Federal Buildings Owned by the General Services Administration
Gao ID: GAO-02-854R August 8, 2002The General Services Administration (GSA) manages over 1,700 federally owned buildings with $5.7 billion in identified repair and alteration needs. GAO was asked to review the situation, but at the time the review started, the Public Building Service (PBS) also began a review, and, consequently, GAO reviewed the PBS review. PBS described the building inventory as predominantly aged with reinvestment needs that far exceed the capabilities of the Federal Buildings Fund--a revolving fund administered by the GSA. PBS analyzed 1,375 of GSA's 1,745 federally owned buildings. Each was placed into one of four categories. Buildings termed "nonperforming" do not generate sufficient income to cover their expenses and to set aside a minimal amount for future repair and alteration needs or replacement. Buildings termed "poor" generate sufficient income to cover their expenses and a minimal reserve. Buildings termed "good" pass the prior two tests and have a return of investment (ROI) of at least 6 percent, but their conditions are considered poor, and they have high reinvestment needs. Buildings termed "solid" are those that generate more than 6 percent ROI and are in good condition, thus having relatively low reinvestment needs.
GAO-02-854R, Financial Condition of Federal Buildings Owned by the General Services Administration
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United States General Accounting Office:
Washington, DC 20548:
August 8, 2002:
The Honorable Pete Sessions:
House of Representatives:
Subject: Financial Condition of Federal Buildings Owned by the General
Services Administration:
Dear Mr. Sessions:
As the federal government‘s real property manager, the General Services
Administration (GSA) manages over 1,700 federally owned buildings that
have about $5.7 billion in identified repair and alteration needs.
During our work for you on public-private partnerships, [Footnote 1] we
discussed that GSA had or was at risk of having a negative net income
from several of its buildings because of their deteriorating
conditions. Several buildings were vacant or at risk of losing their
tenants because of the condition of the buildings. Although GSA does
not receive rental income on vacant buildings, it still incurs expenses
to operate key building systems and secure the buildings. You asked us
to provide information on the financial condition of GSA‘s owned-
building inventory. As we began our work, however, GSA‘s Public
Buildings Service (PBS) also began a review to, among other things,
evaluate the financial condition of each of GSA‘s owned buildings. As a
result, as agreed with your office, we did not conduct a review.
Instead, this letter summarizes the results of PBS‘s efforts to date
and its future plans regarding the owned-building inventory. To obtain
this information we reviewed briefings and other PBS documents and
interviewed PBS officials. We did not independently verify the
information provided. PBS officials provided comments on a draft of
this letter, which we incorporated.
PBS‘s Commissioner has described the owned-building inventory as
predominantly aged with reinvestment needs that far exceed the
capabilities of the Federal Buildings Fund (FBF). Repairs and
alterations, as well as other capital and operating expenses associated
with maintaining federal buildings, are financed by the FBF, a revolving
fund administered by GSA. Rents that GSA receives from federal agencies
are deposited into the FBF. The FBF has not generated sufficient income
over the years to finance all the needs of the GSA buildings. For
fiscal year 2002, an aggregate amount of $6.1 billion was available in
the FBF for expenditure. This amount was authorized for expenditure as
follows: 48 percent for rental payments, 29 percent for building
operations, 14 percent for repairs and alterations, 6 percent for
construction, and 3 percent for installment payments for acquisitions.
Although authorized funding for repairs and alterations within the FBF
has increased in 6 of the past 10 years, GSA does not expect the FBF to
generate enough revenue through rental income to meet all the current
and future needs of the current owned-building inventory. GSA also
does not expect to receive direct appropriations to meet such needs.
Given the backlog of repair and alteration needs for federal buildings
and its limited financial resources, [Footnote 2] in June 2001 PBS
undertook a review of GSA‘s owned-building inventory. Its goal was to
develop a strategy to best align the portfolio with PBS‘s mission of
providing responsible asset management. In January 2002, PBS‘s
Commissioner approved a strategy to restructure and reinvest in GSA‘s
owned-building inventory. PBS has stated that each building in the
inventory should serve a predominant federal need and, at a minimum,
generate sufficient income to cover its own upkeep. It concluded that
GSA could no longer afford to keep buildings in the inventory that do
not generate a positive income to the FBF.
GSA manages a total of 1,745 federally owned buildings. PBS used fiscal
year 2001 data to conduct financial analysis of 1,375 of its owned
buildings. Each building was placed into one of the four
categories”nonperforming, poor, good, and solid”based on the results of
the financial analysis. According to PBS, the 370 buildings that the
team did not analyze were primarily border stations for which PBS was
already working with the tenant agencies to establish rents that would
cover these buildings‘ expenses.
* Buildings termed ’nonperforming“ do not meet the lowest test of
generating sufficient income to cover their expenses and to set aside a
minimal amount, 2 percent of the building‘s replacement cost, for
future repair and alteration needs or replacement of the building. PBS
plans to limit the capital expenditures made in these buildings.
* Buildings termed ’poor“ pass the lowest test of generating sufficient
income to cover their expenses and the minimal reserve. However, these
buildings have less than a 6 percent return on investment (ROI), and
thus GSA may not consider them to be the best investment of resources.
ROI shows how much the building is generating in income compared with
the value of the building. These buildings are to be examined further
to determine whether reinvestment in the buildings would likely yield
higher returns. For example, the ability to recapture vacant space and
make it available for rent could yield a high return.
* Buildings termed ’good“ pass the prior two tests and thus have an ROI
of at least 6 percent, but the conditions of the buildings are
considered poor and they have high reinvestment needs. According to
PBS, these buildings are probable candidates for reinvestment, if funds
are available.
* Buildings termed ’solid“ are those that generate more than 6 percent
ROI and are in good condition, thus having relatively low reinvestment
needs. These buildings would likely be held for the long term and would
be priority reinvestment candidates in order to keep them from
deteriorating.
Figure 1 shows the results of PBS‘s analysis of 1,375 buildings with a
total of 180.2 million rentable square feet of space. About half of the
buildings, 693, fell into the ’nonperforming“ and ’poor“ categories,
combined. However, these 693 buildings accounted for only 28 percent,
or 50.1 million, of the rentable square feet of space. The other 682
buildings fell into the ’solid“ and ’good“ categories, combined. These
buildings accounted for 72 percent, or 130.1 million, rentable square
feet of space.
Figure 1: Percentage of Buildings and Rentable Square Feet of Space, by
Financial Category:
[See PDF for image]
This figure is a vertical bar graph depicting the following data:
Financial category: Nonperforming;
Number of buildings: 570 (approximately 42%);
Rentable square feet, in millions: 31.1 (approximately 17%).
Financial category: Poor;
Number of buildings: 123 (approximately 9%);
Rentable square feet, in millions: 19 (approximately 10%).
Financial category: Good;
Number of buildings: 129 (approximately 9%);
Rentable square feet, in millions: 30 (approximately 15%).
Financial category: Solid;
Number of buildings: 553 (approximately 40%);
Rentable square feet, in millions: 100.1 (approximately 56%).
Source: Public Buildings Service.
[End of figure]
Now that the owned buildings have been categorized based on their
financial performance, the asset managers for each building, who are
located in GSA‘s regional offices, are responsible for developing
building-specific strategies. These strategies are to reflect the
financial categories of the buildings. According to PBS officials, the
strategies for the nonperforming buildings should be developed by
December 31, 2002. They expect the strategies for the other buildings
to be easier to develop”since for many of them the strategies will be
to hold and maintain the buildings”and, thus, hope to complete them by
the end of fiscal year 2002. PBS‘s Assistant Commissioner for Portfolio
Management expects all the strategies to be fully implemented within 5
years; by that time, he expects virtually all of GSA‘s owned buildings
to be self-sustaining and to serve a predominantly federal need.
Recognizing that responsibility for each GSA building is spread among
its asset managers, who are located in its 11 regional offices, PBS
created the Workout Task Force in its headquarters to manage and
coordinate the development and implementation of the strategies. The
task force has been working with, and is to continue to work with, the
individual building asset managers regarding both the development and
the implementation of the strategies. The task force plans initially to
focus its efforts on those buildings in the nonperforming category
because they are the biggest financial drain on the FBF. According to
task force officials, possible strategies for nonperforming buildings
include: disposal; exchange with other federal, state, or local
agencies; renegotiation of rents; outlease to nonfederal tenants;
transfer of the building to the tenants; and public-private
partnerships, if GSA is provided this authority. According to PBS, it
has already begun to implement the strategies for a number of
buildings. For example, PBS said that many of its nonperforming
buildings have been referred for disposal, and the number of buildings
in the disposal process has increased significantly since last year. In
addition, PBS said that it is in the process of renegotiating rents on
several nonperforming buildings.
PBS plans to make its building assessment process continual. According
to PBS, it plans to review the financial performance of each building
annually, recategorize the buildings if necessary, review the strategy
for each building, and adjust the strategies when necessary to reflect
the building‘s current financial performance.
Please contact me at (202) 512-2384 or at ungarb@gao.gov if you or your
staff have any questions. We are sending copies of this letter to the
appropriate congressional committees. We will also make copies
available to others upon request.
Sincerely yours,
Signed by:
Bernard L. Ungar:
Director, Physical Infrastructure Issues:
[End of correspondence]
Footnotes:
[1] U.S. General Accounting Office, Public-Private Partnerships: Pilot
Program Needed to Demonstrate the Actual Benefits of Using
Partnerships, GAO-01-906 (Washington, D.C.: July 25, 2001). We define a
public-private partnership as an arrangement in which the federal
government contributes real property and a private entity contributes
financial capital and has the borrowing ability to redevelop or
renovate real property.
[2] U.S. General Accounting Office, Federal Buildings: Funding Repairs
and Alterations Has Been a Challenge”Expanded Financing Tools Needed,
GAO-01-452 (Washington, D.C.: Apr. 12, 2001). U.S. General Accounting
Office, Federal Buildings: Billions Needed for Repairs and Alterations,
GAO-00-98 (Washington, D.C.: Mar. 30, 2000).
[End of section]
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