Six Steps Government Entities Can Take to Optimize Their Real Estate Portfolios and Tighten Belts
As we enter 2012, government entities are looking to reduce operating, maintenance, and energy expenses from disposals or other cost saving initiatives. State and local governments in particular, which have experienced more than $425 billion in budget short falls since the start of the recession are now imposing across-the-board spending cuts, including cuts to core services, while at the same time looking at alternative forms of financing and efficiency gains that can be employed by leveraging strategic use of commercial real estate.
Based on an assessment of government real estate portfolios, Jones Lang LaSalle offers three recommendations for cutting costs and three for leveraging alternative financing options in the New Year.
Cost Cutting Strategies
- Identify Portfolio Right-Sizing/Consolidation Opportunities
One way government can reduce administrative expenses and unlock hidden value in their properties is to conduct a detailed assessment of their portfolios to define and program for the adjustments needed.
For example, one state conducted an overall assessment of its multi-million-square-foot portfolio and identified multiple cost saving and avoidance opportunities including disposal of surplus via outright sale or public-private partnerships. On the consolidation and right-sizing front, a transportation entity consolidated their offices and headquarters from eight locations in two states to one building.
- Implement Workplace Strategies
Leading organizations, particularly on the technology front, have been implementing alternative workplace strategies for more than 20 years. These strategies are now becoming mainstream and being adopted by savvy state and local governments. One West Coast county is exploring an innovative strategy to co-locate county and city administrative spaces in order to achieve substantial efficiencies for both entities.
- Avoid Costly Real Property and Energy Costs
The nation's approximately five million commercial buildings are responsible for 18 percent of total annual energy consumption in the United States. Government entities can use current and cutting edge technology to reduce energy consumption and save costs.
These efforts amounted to real dollars for a Mid-West state which performed an integrated facilities assessment, conducted energy audits and improved technology. They achieved a reduction in overall operating costs of more than 35% and energy usage by approximately 30% equating to +$5.7 million in savings in 2010.
Alternative Financing Strategies
- Dispose of Underutilized or Non-Core Real Estate Assets
On June 10, 2010, President Obama issued a memorandum calling for the disposition of unneeded Federal real estate with the goal of producing not less than $3 billion in cost savings. Now, state and local governments are also exploring these strategies to dispose of underutilized assets that no longer serve the organization’s initiatives and redeploy capital into their core government services projects.
- Execute Sale/Leaseback Strategies
Government executives can also execute sale/leaseback strategies to unlock the equity they have in their real estate and convert that into to cash.
- Implement Public-Private Partnerships
The use of alternative financing via private capital can serve as an important vehicle for optimizing agency real estate portfolios, enhancing services to customers and focusing limited resources on core agency missions.
A state recently transformed nine acres of unused land next to a new transit station into a world class transit-oriented development and leveraged assets to a private developer to provide financing for a 4,000 space commuter parking garage and other required station elements.
These are just a few of the recommendations that Jones Lang LaSalle’s commercial real estate and public institution experts provide to federal, state and local government representatives.