The government's years-long effort to unload the Portland Customs House in Portland, Ore., is a telling example of why an expected windfall from the sale of surplus federal buildings and property is likely optimistic. (General Services Administration)
The Obama administration and some lawmakers have pointed to one untapped source of revenue for the government: excess federal properties, which they say could net $15 billion in savings and sale revenue combined.
But the government's years-long effort to unload the Portland Customs House in Oregon is a telling example of why that figure is likely to be enormously optimistic.
The 110-year-old building, listed on the National Register of Historic Places, was last occupied five years ago. Since 2005, the General Services Administration has been trying to get rid of it.
GSA first agreed to turn the building into a hotel and then decided against that plan. Then came plans to give the property at no cost to a local community group. In 2010, it dropped that plan and decided to sell the building at auction.
Real estate firm PREM Group won the right to buy the building for $2.5 million, then decided not to purchase the property, according to GSA.
The agency opened a new auction Dec. 1. The top bid so far: a disappointing $1.7 million, well below the previous sale.
Industry analysts and agencies see less value in selling excess federal buildings than in just getting rid of them.
Of the nearly 14,000 excess properties identified by the administration, only 154 are slated for sale — and of those, 144 are small Forest Service buildings.
More than 4,600 properties are slated for demolition, and another 512 are being given to state, local and community organizations, according to the administration. The fate of most of the rest is still undecided.
The White House in May proposed the Civilian Property Realignment Act as part of its plan to generate $15 billion over three years by selling or disposing of federal property. The bill would establish a seven-person board that would make recommendations to Congress on the disposal of federal properties.
The savings estimate was from the Office of Management and Budget, which said the combination of sales proceeds, reduced operating expenses and reduced maintenance costs would total about $15 billion over three years. OMB would not provide a breakdown of how they arrived at those estimates.
Rep. Jeff Denham, R-Calif., chairman of the Transportation and Infrastructure public buildings subcommittee, has similar legislation before the full House that would accelerate efforts to shed excess federal properties.
Joe Brennan, head of the Government Investor Services Group at Jones Lang LaSalle Americas, said the properties the government is selling do not have a lot of value.
"They are just kind of cleaning out the attic," Brennan said.
He said the federal government would have to dig deeper into its portfolio of buildings in order to come close to the $15 billion discussed in Congress and at the White House.
"They are getting rid of things that really do not have commercial value to them," Brennan said.
Agencies are trying to get rid of low-value properties, primarily to save money on future maintenance and upkeep, he said. But real estate companies prefer occupied properties with low up-front renovation or maintenance costs and a guaranteed source of income — such as a federal office building that comes with a current tenant.
To generate real income, agencies will have to work on selling more high-value properties in major urban areas, he said. The current list of properties is just a "preliminary step."
He said while the market for selling government buildings with an agent as a tenant is good, the market for selling an empty government building is not.
Empty buildings are likely to draw the most money in busy markets such as New York, Boston or Washington but less in lower density areas.
Spencer Levy, executive managing director of capital markets at real estate services company CBRE, said federal properties are no different from commercial properties in that their value is based on how much investors think they can earn.
Vacant properties with renovation or environmental issues are not in high demand, while buildings with current tenants or in popular areas such as Washington or New York will command higher prices, he said.
Levy said while the real estate market has improved over the last year, there is still not a strong demand for the type of older, empty building federal agencies are trying to sell.
He said companies would be hesitant because of the potential renovation costs or environmental cleanup costs that could come from purchasing an empty building.
"People are going to pay less because there are risks to the property," Levy said.
The Congressional Budget Office said in a June 27 letter that most properties the government intends to sell off are negligible in value and would net little, if any, revenue.
But that doesn't stop agencies from trying.
The former Cape Girardeau Federal Building and Courthouse in southeast Missouri was originally put up for auction in May with a suggested opening bid of $750,000. But GSA did not receive any bids for the two-story, 47,000-square-foot property and reopened the auction Nov. 9. It now has one bid — for $325,015 — and is evaluating the offer, said regional spokeswoman Angela Brees.
GSA knows it's a tough market and has to weigh other considerations besides the price, she said.
"We of course want the highest sale price possible, but ensuring the building is available for reuse or redevelopment is a high priority as well," Brees said in a statement.
Some agencies are limited by what properties they can sell. The Defense Department, for example, expects to demolish most of its excess property, according to spokeswoman Lt. Col. Melinda Morgan.
Many of these structures are World War II-era structures no longer in use, she said.
DoD has saved about $260 million since 2010 by demolishing old buildings, according to department figures.
The Forest Service has more than 4,000 properties identified as excess by the administration, mostly storage facilities, barns, nursery facilities and firefighting supply buildings.
In addition to the 144 identified for sale, more than 700 are slated for demolition, according to the administration.
Since the White House made the disposal of excess property a priority in 2010, GSA has only sold a handful of big-ticket buildings, including:
• Federal Building No. 2 in Brooklyn, N.Y., sold for $10 million in August. The 1.1 million-square-foot building will be redeveloped into an industrial center, according to developer Salmar Properties.
• The Fort Worth Federal Center property in Texas — 17 structures including sheds and large concrete slabs over 75 acres. The property was sold at auction in May for more than $6.4 million.