Evolution of Asset Management at GSA

1. Evolution of Asset Management at GSA William Matthews Assistant Commissioner for Real Property Asset Management Public Buildings Service United States General Services Administration 2005 TWN Workshop

2. GSA’s Inventory Courthouses Courthouses/Office Buildings Customhouses Office Buildings Warehouses Border Stations Residence Laboratories Other (Sheds and Pump Houses) Garages Federal Centers Parking Lots and Decks 2005 TWN Workshop

3. A Historical Perspective • 200 year tradition • Federal Property and Administrative Services Act of 1949 • Economical and efficient system for procurement and utilization • Public Buildings Act of 1959 • Federal Buildings Fund created in 1972 • Commercial market rent – operations and maintenance • A tradition of stewardship • Changing our business model 2005 TWN Workshop

4. PBS Inventory Challenge: • Many properties are physically and functionally obsolete • Many properties are in the wrong location to meet customer needs • Costs of repairs to the owned inventory are beyond our ability to fund 2005 TWN Workshop

5. Historic 1810 – 1941 Alexander Hamilton Custom House New York, NY US Courthouse San Juan, Puerto Rico 2005 TWN Workshop

6. World War II 1942 – 1949 Federal Center Auburn, WA Federal Center Kansas City, MO 2005 TWN Workshop

7. Great Society 1950 – 1979 Federal Building and Courthouse Phoenix, AZ Federal Building Los Angeles, CA 2005 TWN Workshop

8. Contemporary 1980 – 1993 Thomas O’ Neill Federal Building Boston, MA Alan Bible Federal Building Las Vegas, NV 2005 TWN Workshop

9. Design Excellence 1994 – Present Lloyd George Courthouse Las Vegas, NV Federal Courthouse Islip, NY 2005 TWN Workshop

10. A Decade of Change • Government Performance and Results Act • GAO more investment/better utilization • OMB focus on results • Executive Order 13327 • Market premium on value • Outsourcing • Customer demand shifts 2005 TWN Workshop

11. Portfolio Strategy: A Balanced Approach • STRATEGIC VALUE • Community Perception • Historic Value • Location • Federal Need • Asset Use • REAL ESTATE MARKET • Type of space available • Ability to meet customer need • Price • Market Forecast • Moving Costs ASSETS MARKETS • FINANCIAL VALUE • Return / Financial Picture • Vacancy / Utilization • Condition of Asset • Environmental Risk • Market Value PORTFOLIO STRATEGY • CAPITAL MARKET • Availability of Funds • Cost CUSTOMERS • RISK ASSESSMENT • Budget Constraints • Political Environment • Space Trends • Customer Mission • HOUSING PROFILE • Build-out Requirements • Security Requirements • Build-out Requirements • Community Perception 2005 TWN Workshop

12. PBS Asset Management Principles • Customer needs drive portfolio • Assets must perform financially • Assets should be applied where they fit best • Reinvestment is essential • Income/Expense should be comparable to the market • Redeploy assets in a timely fashion • Use industry practices and metrics 2005 TWN Workshop

13. Asset Management: A Continuous Cycle • Financial performance • Occupancy / demand • Physical condition / lifecycle • Market • Operating expenses • Historic status • Asset valuation 2005 TWN Workshop

14. Asset Performance Metrics • FFO – Funds From Operations • NOI – Net Operating Income • Vacant space • Operating costs vs. market • Customer satisfaction • Asset value 2005 TWN Workshop

15. Portfolio Strategy • Restructuring portfolio to consist primarily of strong income producing assets • Defining holding periods & strategies for every asset • Targeting reinvestment • Renegotiating rents • Creating solutions and adding value • Exchanges • Ground Lease – Leaseback 585c • Disposal • Demolition 2005 TWN Workshop

16. Tiering the Owned Portfolio • Performing: • Tier 1. Solid financial performance – satisfies long-term customer needs • Tier 2a. Good financial performance - large capital improvements required • Under-performing: • Tier 2b. Poor financial performance • Non-performing: • Tier 3. Poor financial performance – assets with negative cash flow 2005 TWN Workshop

17. Restructuring Highlights:Rentable Square Feet 2005 TWN Workshop

18. Portfolio Progress • 325 buildings removed from tiering since FY2002 • 178 excess buildings • 47 buildings demolished • 100 building data corrections • 9.3M RSF to disposal • 1.3M RSF to demolition • 2.2M RSF reclassified to reflect actual ownership • Over $200 million reinvestmentavoided 2005 TWN Workshop

19. Federal Real Property Asset Management (E.O 13327) • Given the enormous size and value of the federal inventory, a mere one percent reduction in the total amount of unneeded federally – owned properties would yield billions of dollars in savings. Therefore, in the next four years, agencies will establish and achieve an aggressive set of goals for disposing of unneeded or underused properties. The Council anticipates that these efforts could reduce the overall size of the federal inventory by at least 5%, yielding significant savings and efficiencies -Clay Johnson III, Deputy Director for Management, March 2, 2004 2005 TWN Workshop

20. Stakeholder Support • Retention of net proceeds • Ground lease/leaseback • Increased reinvestment 2005 TWN Workshop

21. Successful Reinvestments 2005 TWN Workshop

22. Evolution of Real Property Asset Management at GSA • Establishing Holding Period • Identifying Core Assets • Refining Reinvestment Forecast • Refining Disposal Forecast • Leading Us To Predictable End State 2005 TWN Workshop

23. End State • More leased than owned • Larger owned properties • Owned assets concentrated in larger markets • Specialized space in other markets • Self-sustaining portfolio • Quality of space improvements 2005 TWN Workshop

24. GSA: Evolution of Asset Management QUESTIONS? 2005 TWN Workshop