Federal agencies with cash flow problems are penning real estate deals with the private sector to improve both crumbling buildings and crumbling budgets, a new General Accounting Office report says.
In the report, "Public-Private Partnerships: Key Elements of Federal Buildings and Facility Partnerships" (GGD-99-23), GAO describes six real estate deals through which federal agencies have partnered with the private sector. The deals help restore historic buildings, make use of idle land and earn agencies millions of dollars.
"A primary reason for an agency to enter into partnerships is the incentive to keep for its own use the revenue it would receive from the partnership," GAO said. But federal real property rules prohibit most agencies from using revenues from the lease or sale of excess properties. For each of the public-private real estate projects GAO identified, Congress authorized exceptions to the rules.
Congress gave the U.S. Postal Service special authority to ink real estate deals as part of the USPS' 1970 reorganization act. USPS used that authority to renovate the Grand Central Station Postal Facility in midtown Manhattan, which was built in 1906 and protected by historic preservation laws.
USPS contracted with asset management firm Hines, which rebuilt the inside of the postal facility and built a 32-story office tower on top of it. Hines manages the tower while the post office occupies 170,000 square feet of the building. USPS rakes in more than $12 million a year from rent. Based on the original deal USPS struck, that figure will jump to more than $16 million a year in 2002.
Congress has also authorized the Veterans Affairs Department to enter into special real estate deals. In Houston, a private developer built VA's regional office. VA then leased land to the developer on its campus. The developer constructed buildings and now rents space to commercial firms. The deal saved VA $6 million in construction costs for its Houston office. The department will save an additional $10 million over the 35-year term of the lease, and VA earns $75,000 a year in revenues from the developer's commercial development project.
GAO said the key ingredients to a successful public-private real estate partnership are statutory authority, detailed business plans that lay out public and private responsibilities, local community and other stakeholder support, and in-house staff with real property expertise. Fiscal and community pressures often compel agencies to look for innovative ways to deal with property challenges, GAO said.
Rep. Stephen Horn, R-Calif., who requested the GAO study, said the government is "looking for ways to manage the federal government's vast real estate holdings more efficiently." The House Government Reform Subcommitttee on Government Management, Information and Technology will hold a hearing on the public-private partnerships next month.
NEXT STORY: Surplus surges; could ease budget work