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Tonight, the Congressional deficit reduction supercommittee is expected to announce its failure to agree upon $1.2 trillion in federal budget cuts. Included in the committee's discussions was the disposition of 14,000 federal assets.
Jon Bouker, The Roosevelt Hotel, NYC, on Nov. 18, 2011
But all is not lost, according to Arent Fox's Jon Bouker. At Bisnow's"For Sale? New Opportunities with GSA Assets" event on Friday morning at The Roosevelt Hotel, he said President Obama carries in his pocket a Presidential Memorandum to sell $3B (not necessarily a ceiling) worth of real estate. Plus, Congress is working on legislation to dispose of at least $15B of properties. In the meantime, Jon says the committee's failure will trigger automatic cuts that will hit close to home for both parties. Still, the effects won't be felt for a year, and there's an election and a new Congress coming in that could negate those cuts, Jon says.
Joe Brennan, The Roosevelt Hotel, NYC, on Nov. 18, 2011
JLL managing director of government investor services Joe Brennansays the hope of earning $15B on the sale of 14,000 unnecessary federal assets is a tall order when the list includes "boat ramps on the Chesapeake" and "lighthouses on Lake Michigan." (For Congressional vacations?) In general, commercial property' values come from cash flow and zoning rights, he says, adding that federal agencies need incentives (like cash or in-kind services) to put time and energy into dispositions. The NASA disposition guy, for instance, has limited incentive to perfect a ground lease at Kennedy Space Center.
Desa Sealy and Joe Brennan, The Roosevelt Hotel, NYC, on Nov. 18, 2011
GSA's Desa Sealy says there are some stellar opportunities, like thecoal plant sitting on high-profile land in DC's hot Georgetownsubmarket. She says her agency recently tipped the scales toleasing more space than it owns, and the GSA would like to reverse that trend. However, the GSA has no authority to do sale-leasebacksright now, despite the fact that they're the quickest way to get capital into federal coffers. Meanwhile, Desa says, the GSA's $800M construction budget has already been zeroed out. The Department on Homeland Security and the GSA were to split the $113M cost ofrelocating Coast Guard employees to the first phase of the St. Elizabeths redevelopment. Neither agency has the funds, let alone the $2.4B needed to finish further phases.
Jeff Walker, The Roosevelt Hotel, NYC, on Nov. 18, 2011
Edge Principal Advisors' Jeff Walker says another uncertainty for potential investors in these assets are the operating costs. How much will taxes be, he wonders, considering they're not currently taxed? Desa adds that getting taxes flowing on these properties is one reason local municipalities will be motivated to work onentitlements, though the GSA simply sells properties auction style, as is. In other words, entitlement changes are the burden of the buyer.
Keith Styles and Desa Sealy, The Roosevelt Hotel, NYC, on Nov. 18, 2011
Our moderator, Arent Fox's Keith Styles, and Desa took a break from real estate talk for an imprompu staring contest. Keith says Congress can't even decide what to have for lunch, but the concept of selling real estate is something both parties do agree on. The panelists say that whatever the bureaucratic obstacles, the fact that the disposition conversation is happening at all is an opportunity. It's a start, Joe says. Like his own family, the federal government is good at procurement and needs to get better at dispositions. Keith points out that as with BRAC, execution and rules may adjust during the process, so nothing is impossible.
The Roosevelt Hotel, NYC, on Nov. 18, 2011
They also warned against getting hung up on just the 14,000 properties on the disposition list. Dust off your ideas for federal properties and contact your regional GSA office. Joe says there's never been a better time for public-private partnerships, and Desa is trying to expand the GSA's ability to do those. She says the government is "on the cusp of doing some really creative things with real estate—because we have to."
Malcolm Montgomery and Steve Rinehart
Among the attendees with whom we chatted were Shearman & Sterling's Malcolm Montgomery and Bock & Clark's Steve Rinehart, who tells us, "The government shouldn't be in the real estate business." Malcolm says the value in federal properties derives fromgovernment tenancy, but the properties the government wants to sell won't be able to offer that.
Steven Jason, Chris Fleming, and Michael White, The Roosevelt Hotel, NYC, on Nov. 18, 2011
SBJ Advisors' Steven Jason (with Fleming White Appraisals' Chris Fleming and Michael White) tells us he's been working withregional banks that need to shed real estate assets and is now quarterbacking a multi-state restructuring for a special servicer. "It's all about trying to find the best solution in the midst of continuing uncertainty," he says.
Kirk Tucker and Andrew Ross, The Roosevelt Hotel, NYC, on Nov. 18, 2011
We also snapped MBP's Kirk Tucker and Arent Fox's Andrew Ross.