Five questions government leaders should be asking
about their real
estate portfolio

Practical solutions to reduce costs while advancing your mission

November 12, 2020

State and local governments have been front and center in the fight against the COVID-19 pandemic, creating new fiscal pressures.

With strained budgets across cities, states and counties, now is the time to leverage one of government’s most valuable assets – its real estate – to reduce costs, increase flexibility and find innovative ways to deliver constituent services.

The following are five questions government leaders should be asking to leverage their real estate and start their cost savings journey today:

  1. With many government employees working from home, how can I effectively consolidate space?
    Your portfolio data will be invaluable for understanding how much space you own and lease today versus how much you will need in the next one, two or five years. Taking a data-driven approach is an effective first step to reduce costs, much like the analysis completed for the District of Columbia by the Department of General Services .

    Through a detailed portfolio analysis, you can uncover opportunities to free up funds. For example, over the next six to 24 months, extending remote work policies adopted during the pandemic could reduce square footage and occupancy costs by as much as 10% to 20% while honoring the unique culture and mission of your organization. If you experience a sudden surge in demand for onsite workers, short-term, on-demand flexible space is one option for adding space without a long-term commitment.

  2. Is it possible to operate more efficiently while still supporting our organizational culture and broader policy goals?
    There is an obvious need to balance remote and in-person work, while simultaneously supporting constituent and employee needs. To help solve this challenge, some state governments are considering inter-agency pods- strategically located supercenters to provide constituents with access to various government services in one location. This model also provides employees with the opportunity to work remotely or in a location near their home and/or close to transit. At each location the various departments share conference rooms, reception areas and other spaces, reducing costs through the consolidation of redundant resources, while improving access to services and fostering a sense of connection for your constituents and employees.

    City and county governments may have a similar opportunity to consolidate across-departmental spaces to reduce real estate footprints and lower overall real estate costs.

  3. Are there hidden costs beyond my mortgage payment?
    There are many ways to tap into additional savings in your portfolio:

    • Analyze your portfolio data – including facilities management, operating and maintenance expenses. For example, by conducting an energy assessment, you may discover your buildings incur above-average expenditures for energy consumption. A simple solve could be switching to energy-efficient lighting and heating and cooling systems. Not only will your facilities be more sustainable, it will also reduce costs almost instantly.
    • Utilize your property data to uncover space utilization and occupancy planning opportunities. On average, 40% of office space is under-utilized. Real estate is typically the third-highest cost on a balance sheet, making the financial implications of under-utilization astronomical. Through a holistic program that harnesses data, analytics, insight, strategy and continuous portfolio optimization, you will be able to understand your utilization picture and drive cost savings out of under-utilized space.
    • Outsourcing your facilities management can be a powerful means of achieving savings and flexibility. Savings arise from greater efficiency, volume purchasing, and the transfer of long-term pension liabilities from the government entity to the private sector partner. One state has saved more than $50 million over five years by partnering with a real estate service provider. That provider also hired most of the state’s facilities personnel to continue working in their facilities, supplying continuity of service and retaining significant organizational history.

  4. How can I monetize government real estate assets to drive new revenue streams?
    Monetizing your real estate assets can generate long-term revenue, spur economic development, return value to taxpayers in the form of reduced property and sales taxes, create jobs and unlock capital for alternate uses, sustainability and other policy goals.

    Many government entities are considering various strategies to develop new funding and delivery strategies. One consideration is to leveraging public-private partnership (P3s) to fund planned core infrastructure investments. The P3 model can be used to fund and deliver large capital projects, transfer risk to a private sector partner who assumes responsibility for long-term maintenance and capital renewal, or, for some projects, even create a new revenue stream from an asset with untapped revenue potential.

    In a revenue producing P3, your organization receives an annual payment, a lump sum or a share of future revenue streams in exchange for giving a private sector partner the right to build, operate and maintain a toll road, bridge, parking facility, airport or other infrastructure project that could potentially generate tolls or user fees. Fairfax County, Virginia, for instance, has forged multiple P3s to improve public amenities and infrastructure, support transit-oriented development, and provide workforce, affordable and senior housing in mixed-use communities—while saving more than $2 million.

    Another area of consideration might be to lease land or rooftops to solar power developers, renting space for telecommunication uses such as antennas, or leasing air rights. Washington Metropolitan Transit Authority used this approach by partnering with a solar energy provider to install 17 acres of photovoltaic solar panels over Metrorail parking facilities. The project created a $50 million revenue stream, while powering approximately 1,500 homes in the community.

  5. How can I take advantage of falling lease rates to reduce my overall leasing costs?
    The increase in space availability has created a tenants’ market and an opportunity to secure more favorable lease terms. There are multiple ways to secure more favorable lease terms. To help identify opportunities, you will need to analyze your current leases for potential cost-saving opportunities.

    One approach is to “blend-and-extend” early lease renewals, extending the lease length in return for a lower rent rate, additional capital improvements, fewer rentable square feet and other concessions important to your organization.

    In some cases, a sale-leaseback agreement may make more sense. This arrangement allows you to sell your property and lease it back, providing you access to space in key locations while avoiding long-term deferred maintenance obligations that can be difficult to fund.

These are just a few of the strategies you can apply now to unlock savings and start recapturing revenue.

Want more? Read 10 ways for government leaders to boost the bottom line through real estate.