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Obama orders government-owned real property sell off

The rush to sell government-owned properties

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.

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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.

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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.

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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

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Written By

Erica Ramus is the Broker/Owner of Ramus Realty Group in Pottsville, PA. She also teaches real estate licensing courses at Penn State Schuylkill and is extremely active in her community, especially the Rotary Club of Pottsville and the Schuylkill Chamber of Commerce. Her background is writing, marketing and publishing, and she is the founder of Schuylkill Living Magazine, the area's regional publication. She lives near Pottsville with her husband and two teenage sons, and an occasional exchange student passing thru who needs a place to stay.

21 Comments

21 Comments

  1. Jim Gatos

    June 17, 2010 at 4:11 pm

    Here’s hoping they hire Russell Shaw’s team to sell what inventory they have in Arizona…

    Knowing the government, they’ll probably FSBO it and wind up giving the store away. LOL

  2. Dan Berkovitz

    June 17, 2010 at 10:15 pm

    I’m sure there’s going to be some great investment opportunities on warehouses!

  3. Miami Condo Shop

    June 18, 2010 at 8:16 am

    I wonder why Pres. Obama suddenly shifted to cost cutting mode. Good intentions though. Better liquidate those idle assets and turn them into something more worthwhile. The memo will surely affect the commercial real estate market but not to the extent that it will shake the industry. Not a big deal really.

    • Erica Ramus

      June 19, 2010 at 3:15 pm

      See Dunes’ reply below, for one answer to that.

  4. Erica Ramus

    June 18, 2010 at 8:19 am

    The government property usually sells via auction, I believe.

  5. Joe Loomer

    June 18, 2010 at 8:11 pm

    Speaking from personal experience, there’s some extremely valuable real estate in the Monterey area that could wipe out a significant portion of the deficit…..

    Navy Chief, Navy Pride

  6. Joe Loomer

    June 18, 2010 at 8:13 pm

    Oh, and if they closed Fort Huachuca in Arizona – which is sucking the water table dry – and moved it to Fort Gordon, Georgia (which has water, land, and “ahem” some Realtors I know), they could sell that land off too!

    Navy Chief, Navy Pride

  7. Joe

    June 19, 2010 at 12:03 am

    Perhaps selling off the presidency is in order as well. I dunno. I guess I’m disenfranchised with our government these days. I guess Obama wants to file suit against Arizona’s immigration law, while doing nothing about immigration reform. Sounds like grand standing to me.

  8. Dunes

    June 19, 2010 at 3:11 pm

    A Homeowner begins to be upside down in their Mortgage and the Credit Cards are being canceled…They sell the Vacation property, the extra car and stop being so generous about paying the kids Cell phone bills, gas money and start thinking downsize before they lose it all..

    Perhaps WHY they are selling may be more important than what or where…

    The Property owner (Gov.) who is asked to help Stimulate the Market..(Tax Credits, Jobs,Education, pump money into local markets, infrastructure ect) is selling……Why? They suddenly decided out of the clear blue sky to be Fiscally Responsible?
    or do we sell the Car to pay the interest on the Health care Credit card or the Social Security Credit card or the Jobs Credit card or the Military Credit card or Education Credit card or or

    I guess this fella just wonders if sometimes the “Motivation” is the real story or concern when wondering about the Future…

    • Erica Ramus

      June 19, 2010 at 3:14 pm

      Insightful, Dunes.

      So after the excess inventory is trimmed and every line item on the budget trimmed to the bone … what do we do next?

      What happens when there is nothing else left to sell.

  9. Dunes

    June 20, 2010 at 3:20 pm

    “what do we do next?”

    What everyone usually does is my guess….adapt.
    What do we do next is the “$64,000 Question” isn’t it?

    How do I compete, Business models, Advertising, what kind of Market will I have to work with, who’s Buying, why, and on and on? Even as a Non-Pro just reading here, other places I know those are expressed concerns and everyone IMO is basically sailing in uncharted waters…There are no experts 😉

    Figuring out what you feel is the Motivation for Major Policy decisions in this Economy may help with the “What do we do?” Question..
    That’s all I’m suggesting..each person can reach their own conclusions but those conclusions will IMO affect the answer to “What do we do?”

  10. Dunes

    June 20, 2010 at 3:29 pm

    Sorry, meant to have as last line..

    So..determining the motivation is made important because of the Questions being asked is basically my opinion.

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