GSA's New Real Estate Head On The Future Of Federal Government Offices
The federal government is the largest occupier of office space in the U.S., and two months ago it welcomed a new official who will guide its real estate strategy as it adjusts to the changes brought on by the coronavirus pandemic.
Albert, previously the head of real estate for D.C.-area transit agency WMATA, will now help federal agencies that have adjusted to their employees working remotely determine how much office space they will need in the future. She spoke with Bisnow Friday, in one of her first interviews since joining the GSA, about how she is approaching those efforts and how they could reshape the federal office footprint.
Albert said that in this new role, she sees herself being at the center of the discussion about the shift to remote work and what it means for the future of office space after the pandemic.
The GSA, along with the Office of Management and Budget and the Office of Personnel Management, sent a memo in June to the heads of federal agencies directing them to provide a plan for their near-term return to the office and their long-term post-re-entry workplace strategy. It said this strategy should be informed by lessons learned during the pandemic and should provide as much flexibility as possible.
This increased flexibility could lead the federal government to reduce the amount of space it leases from private sector landlords, potentially impacting office markets around the country. As of July, the GSA managed 7,800 federal office leases totaling more than 181M SF. Albert said that 60% of the GSA's existing leases are coming due in the next five years, meaning that the market will soon find out how much space the federal government plans to give back.
"In GSA's partnership with federal agencies, we'll be working directly with them on determining what their future space needs will be," Albert said. "Ideally, what we would do is renovate existing federally owned buildings and absorb a lot of that space need into existing buildings."
Consolidating federal agencies into owned buildings could save taxpayer money by reducing the amount of space the GSA leases from commercial landlords. But that effort would require a significant investment in renovating owned buildings, many of which are aging and require maintenance. Albert said the trillion-dollar infrastructure bill that Congress is considering, along with President Joe Biden's $3.5 trillion budget proposal, would help the GSA make those investments.
"Those infrastructure proposals are all going to help GSA, and at this moment there’s a number of different projects all across the country that would benefit from the funding where we can make these big moves and invest in our owned portfolio and reap the benefits of that," Albert said.
Below is the full interview with Albert, lightly edited and condensed for clarity.
Bisnow: As head of real estate for WMATA, you worked on a number of big developments and office projects across the D.C. area. You’re now stepping into a larger national role as PBS commissioner, overseeing the federal government’s portfolio of 370M SF. What appealed to you most about this role, and how does it compare to the type of work you were doing with WMATA?
Albert: What is most appealing about the Public Buildings Service Commissioner role at this particular point in time is that the entire real estate industry is wrestling with what post-Covid office space and usage is going to be, and as the largest landlord and tenant of office buildings, this is an opportunity to be at the center of that discussion. It also lends itself to an opportunity to rightsize the federal portfolio and save American taxpayers money. As a public servant for a couple decades now, the opportunity to both work on a highly industry-relevant issue as well as be a proponent of good government is my sweet spot, and that is very energizing and exciting to me.
Bisnow: You touched on one of the big issues I want to talk about: the future of office space post-Covid-19. This is something on everyone’s mind in the private sector and the public sector. I understand federal agencies have been working on long-term plans for their post-re-entry workplace policies, taking more flexibility into account. Where does that process stand right now, and what indications do you have so far about what it could mean for the government’s real estate footprint?
Albert: GSA has worked with a hundred different experts from within the federal government trying to understand what the future might look like. I don’t think anyone knows exactly what that means and has done math models on what the future footprint looks like. We’re not at that stage yet. What has been established is that there will be a need for office space in the future. There is a whole variety of government functions that continue to require office space. We’re in communities across the United States. Many of our buildings are public-facing and must continue to have a presence at the local level.
So I think what we’re talking about as opportunities to reposition are within agencies where there was no telework policy previously and now they might want to work toward more of a hybridized approach or different solutions by position category or position type. If you have a very transactional job, maybe your job could work much more often remotely than in the office. So what we’re trying to do as an organization is provide federal agencies with solution sets to accommodate different functions within their agencies. Some functions will always be required to be on-site, for whatever reason, other functions have more flexibility, and then there’s a third category that perhaps don’t need to come into the office hardly at all.
Whereas before, real estate and technology were two different service offerings because the federal government was operating on a more common platform of being in the office more frequently, now what we have to deliver to our federal agencies is an integrated solution between IT and real estate to accommodate all of these different employee type needs. So that’s what the future has to incorporate. We know now that real estate and information technology are integrated for the office worker, and that is what we’ll be working on. How it affects our federal footprint exactly is yet to be determined, but that is what we are wholly focused on at this moment, working with federal agencies to understand what their outlook is and how what they’ve learned over the last 18 months might change their space needs.
Bisnow: I understand there are quite a few lease expirations in the coming years, so how does this process work from deciding their workplace policies to executing on those leases? And what role do you and GSA play in deciding the requirements for those leases?
Albert: So approximately 60% of our existing leases are coming due in the next five years. That’s a pretty remarkable opportunity to focus this conversation. In GSA’s partnership with federal agencies, we’ll be working directly with them on determining what their future space needs will be. Ideally what we would do is renovate existing federally owned buildings and absorb a lot of that space need into existing buildings. That’s not always the solution for every agency or every community and location, but that is one set of strategies we’re looking that. And as I just mentioned, the other thing we want to connect with federal agencies about is what an integrated real estate and IT package looks like for them. We partner with our federal agencies to make sure that as the experts in real estate and government technology, that they understand what’s available to them as well as current-day thinking about space so they’re aware, they’re informed, they’re educated and ultimately [we can] help them decide how they want to occupy space in the future.
Bisnow: You touched on the idea of moving leased offices into owned buildings and renovating those buildings. Do you see that as a larger shift where the federal government could end up leasing less space and focusing more on the owned footprint in the coming years?
Albert: I think we have needed to focus on our owned facilities for a long time. There is in many cases significant deferred maintenance, and it needs to be addressed. Many of the buildings we own, about 30% I believe, are historic buildings, and it requires continued reinvestment. We have a fantastic track record of modernizing historic buildings, and so I think, big picture, to be able to renovate our existing assets, to continue to invest in a building that contributes to the history of a local community, is an opportunity to make sure that the modernized building is outfitted in the latest technologies in heating, ventilation and water systems so our federal footprint can have much less of an impact on our climate. These buildings are really part of our identity as a federal government and as a federal workforce. And these are buildings that our employees and the communities they sit in should be proud of. So for all those reasons, to the extent the building can continue to serve the needs of the government, that to me would be the preferred alternative.
I will say that leasing is always an important part of a real estate portfolio, and the need for leases will never go away, because the needs of government are constantly changing. There are shorter-term needs and longer-term needs, and sometimes a lease is the right answer regardless of the owned facilities we have. There will always be a balance between the need for investing in owned facilities as well as continuing to lease. The next five years are going to tell us what the future leasing needs are, so we will start I’d say in the next two years to get a much better indication from agencies what their needs are. And I just want to remind everybody what happens post-Covid, for the next two years, if there’s significant consolidation of space, there can also be growth again over time. We’re all in a moment in time where so many office workers have been working 100% from home. You’re seeing this on the commercial side and you’re seeing it on the federal side, so there is probably going to be a space contraction, but that to me is not necessarily an indication of the longer term.
Bisnow: On the topic of renovating owned buildings, I spoke in January with your predecessor, Dan Mathews, as he was preparing to leave office, and he said one of the biggest challenges he wasn’t able to resolve that he sees for the incoming administration is the ability to access this pool of money that Congress has control over, the Federal Buildings Fund, and using that to renovate these owned properties so you can accommodate more federal workers in those buildings. Is that something you’re working on, or something you see as a challenge?
Albert: I think that this is a No. 1 priority. We have a great opportunity to reposition this portfolio and make it sustainable over the long term financially. But as you can imagine, like any depreciating asset, if you do not continue to invest in it, the deferred maintenance and set of liabilities will outpace the benefit of the asset. So we just need to properly maintain these buildings in a state of good repair as a fundamental basic level of expectation.
Ideally what we’d be doing is investing in these buildings to modernize them, which is another level of investment beyond what the Federal Buildings Fund by itself can achieve. So we need both. We need full access to the Federal Buildings Fund in order to properly maintain our existing asset base, plus we’ll need additional investment in order to reposition the portfolio and achieve those longer-term lease savings.
Bisnow: When you say you need additional investment, do you see that potentially coming soon from Congress? Because there are these two spending bills under consideration right now, the infrastructure package and the president’s budget proposal. Do you see those potentially giving more money to the GSA and allowing you to make some of those investments?
Albert: Those infrastructure proposals are all going to help GSA, and at this moment there’s a number of different projects all across the country that would benefit from the funding where we can make these big moves and invest in our owned portfolio and reap the benefits of that. The investment in infrastructure is absolutely critical to our being able to reposition the portfolio, and I really am hopeful that Congress will seriously consider this opportunity that is before us now so that we can really achieve the benefits that consolidating the portfolio has.
Bisnow: The GSA last month awarded contracts to coworking or flexible workplace providers. Can you talk about why you awarded those, why you’re using those types of offices and what role you see them playing in the government’s real estate strategy going forward?
Albert: Absolutely. So that contract was put out over a year ago and just got awarded. The purpose of them is to provide more flexible options. Those contracts are not intended to be long-term leasing solutions. They’re supposed to be very short-term opportunities that if an agency needs space for two months they can do that at a very low cost to the government. So it just gives another leasing solution or space solution that can deliver faster. That’s why we entered into that contract. It’s with five different companies, and we’ll see who picks up and wants to use that service that we’re providing now. So more to follow.
Bisnow: As agencies have these upcoming lease expirations and they’re evaluating their plans, do you in the near term see the GSA and these agencies potentially signing some short-term extensions, pushing that decision back a bit just to get that full scope of their long-term plans before you make that type of commitment?
Albert: Given the size of the portfolio, we’re engaging in all activities and evaluating every asset based on what the needs of the agency is in that particular building. In some cases a short-term extension is going to make sense. In other cases letting the lease expire will make sense, and in third cases re-upping on a long-term lease will make sense. It’s very dependent on the agency and their needs and what the alternatives are, but all of those options are on the table and being considered based on what the agencies are learning that they need going forward.
Bisnow: The last administration and Dan Mathews talked a lot about signing more long-term leases and providing firm terms to improve the value of the deals, saving taxpayer money. Is that something you hope to continue? Do you see that as a priority, doing more long-term deals, or is that difficult now given the uncertainty around the future of office?
Albert: The priority of what was termed “lease cost avoidance” has reaped tremendous benefit to the federal government. To date we have saved $4.7B by getting out in front of the expiration terms of leases and renegotiating those leases to our benefit. That practice is now embedded in PBS, or GSA, and we will continue to practice and prioritize lease cost avoidance. It’s still incredibly relevant at this moment.
As to whether or not we’re focusing specifically on long-term leases versus short-term leases, it really depends on what the needs of [each] agency are. And there is a benefit generally to longer-term leases, so where there is a long-term need, that would be our strategy. But in the very near future right now what we’re doing is prioritizing engaging with our federal agency partners, understanding what their needs are, and then we will determine how to manage the portfolio as a whole.
Bisnow: I want to touch on one of the big projects that everyone in the D.C. area, as I’m sure you know, is interested in, and that is the potential relocation of the FBI headquarters. This is something that’s been going on for multiple administrations. The Obama administration had narrowed it down to three potential sites in Maryland and Virginia, but that stalled under the Trump administration. What can we expect to happen with the FBI headquarters during this administration? What are the next steps there?
Albert: GSA is engaging with the FBI to determine what a long-term solution is for them.
Bisnow: So right now you’re just in the discussion phase, and then what are the next steps?
Albert: Providing a modern and functional space that suits the needs of the FBI over the long term is definitely a priority both for the agency and the FBI. That’s why it’s important that we work together, determine what the right solution is for them, and then as those plans are determined we will all move very quickly to implement them.
Bisnow: I also wanted to touch on this news in June: The GSA appointed Andrea O’Neal to a newly created role as senior adviser to the administrator on equity to work on diversity, equity and inclusion efforts. I know this was shortly before you joined, but do you have a sense of why this new role was created now and what the goals for having that role are?
Albert: The appointment of Andrea O’Neal to GSA reflects the administration’s priorities of diversity, equity, inclusion and accessibility. She brings forward expertise to the agency and a focus to help us all look at our portfolio and how to maximize opportunities for inclusion of all people in the opportunities that the federal government has, as well as helping us look internally at our policies, at our HR and hiring practices, to really be thoughtful so that our government reflects the diversity of the American people.
Bisnow: We’ve touched on a lot of different topics, but I’m curious, are there any other priorities or focuses of yours we haven’t touched on that you’d like to discuss?
Albert: I’d just like to state that I have two goals for the real estate portfolio while I’m here. The first is very much employee and user-focused. We want to provide an integrated solution set of real estate and IT solutions that provides for our federal clients the flexibility, convenience and amenities that their employees want and need. That’s one goal, which is “how does space impact the productivity of the agency?” The other goal I have is about achieving both a financially sustainable and a climate sustainable real estate portfolio that saves the American taxpayer money and supports a lasting environment for future generations. That is what I hope to put into place during my tenure here.