Federal Real Property: GSA Needs to Determine Its Progress toward Long-term Sustainability of Its Portfolio
Highlights
What GAO Found
In 2002, the General Services Administration (GSA) implemented “tiering”—a series of quantitative tests designed to separate strong income-producing buildings from poorly performing buildings. From 2002 to 2013, almost 20 percent of GSA's buildings with at least 5 years of data were designated as poor financial performers at least 75 percent of the time they were tiered. All 11 of GSA's regions have taken steps to improve the financial performance of these buildings, including eliminating federal tenants' leases, filling vacant space, and reducing operations and maintenance costs. However, some challenges lie beyond GSA managers' ability to address, including rent limitations and poor market conditions. Average annual losses of almost $36 million (for fiscal years 2009 to 2013) were attributable to 116 of GSA's 251 consistently poor-performing buildings; 33 of these buildings accounted for almost 93 percent of the overall loss.
Average Annual Losses among General Services Administration's Consistently Poor- Performing Buildings with Negative Net-Operating Income (NOI), Fiscal Years 2009 to 2013
Note: GAO reviewed 12 years of annual tiering data on 1,283 of GSA's buildings (those in GSA's 2014 inventory with at least 5 years of tiering data). GAO found 251 buildings that have been assessed through GSA's measures as non-performing or under-performing at least 75 percent of the time. GAO refers to this group of 251 buildings as “consistently poor performing buildings.
GSA's progress toward a sustainable portfolio is unclear because GSA has not assessed the gap between the performance the portfolio needs to exhibit to be sustainable and its current performance. Since GSA adopted a 2001 strategy to restructure the portfolio to consist primarily of strong income producers, it has disposed of almost 370 assets comprising about 18-million square feet. However, without assessing progress made toward sustainability, GSA cannot say whether it has done enough to fully address the problem the restructuring strategy was developed to address—that of too few funds for too many buildings. In addition, GSA's quantitative building measures—tiering and core asset analysis (analysis that complements tiering and identifies assets needed long-term)—may not be sufficient for assessing progress toward a sustainable portfolio. Experts GAO interviewed identified several limitations of GSA's tiering method, including that it may be outdated and does not enable comparison of asset efficiency. Further, GSA‘s core asset analysis may be imprecise as in 2013, GSA managers justified categorizing as core assets about 74 percent of the 345 buildings that failed core asset tests. If GSA refined its quantitative measures—tiering and core asset analysis—the measures would be better suited to address the Office of Management and Budget's new National Strategy for the Efficient Use of Real Property, which emphasizes efficiency measures and the long-term sustainability of the federal portfolio.
Why GAO Did This Study
GSA is the primary steward of the federal government's owned portfolio of buildings, many of which do not generate sufficient revenue to fund their own operations, repairs, and capital needs. In 2001, GSA developed a portfolio-restructuring strategy to identify and dispose of those buildings that were a fiscal and managerial drain on the portfolio's resources.
GAO was asked to review GSA's efforts to address buildings with poor financial performance. This report discusses (1) how GSA addresses the effects of consistently poor-performing buildings and the challenges presented by and the extent GSA has sustained losses from these buildings; and (2) the progress, if any, GSA has made toward building a portfolio of strong performing buildings, including the extent to which GSA's quantitative building measures provide useful information. GAO analyzed relevant laws and agency documentation and data for fiscal years 2002–2013—the most recent available data—and interviewed GSA officials and real estate experts representing 11 private-sector professional, industry, and trade organizations selected based on past GAO work and reviews of GSA documents.
Recommendations
GSA should assess progress made toward a sustainable portfolio by identifying the gap between its current performance and the level necessary for sustainment. As part of this effort, GSA should update its tiering and core asset analysis procedures to provide more precise measures for identifying any performance gap. GSA agreed with the recommendation.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| General Services Administration | To assist in determining progress toward a long-term, sustainable portfolio, the Administrator of GSA should identify the gap between the portfolio's current level of performance and the level necessary to sustain the portfolio. As part of this effort, GSA should review its tiering and core asset analysis measures and update them to provide more precise measures that can be used in identifying this performance gap. |
The General Services Administration (GSA) is the primary steward of the federal government's owned portfolio of buildings which it operates and maintains from rents collected from federal tenants. In 2002, GSA implemented a series of quantitative tests--which it termed "tiering"--that were designed to separate strong income-producing buildings from poorly performing buildings. Further, in 2008, GSA determined that it needed more sophisticated analytical tools to compliment tiering and began conducting additional quantitative tests--known as core asset analysis--to identify those assets it intends to hold long-term. In 2015, GAO reported that almost 20 percent of GSA's buildings with at least 5 years of data were designated as poor financial performers at least 75 percent of the time they were tiered. These consistently poor performing buildings strained the sustainability of GSA's portfolio by not only generating insufficient revenue to fund reinvestment needs over time, but also, in some cases, by losing money year to year. GAO also found that GSA's progress toward a sustainable portfolio was unclear because GSA had not assessed the gap between the performance the portfolio needs to exhibit to be sustainable and its current performance. Further, GAO observed that GSA's quantitative building measures--tiering and core asset analysis--may be insufficient for assessing progress toward a sustainable portfolio. As a result, GAO recommended that GSA identify the gap between the portfolio's current level of performance and the level necessary to sustain the portfolio. As part of this effort, GAO recommended that GSA review its tiering and core asset analysis measures and update them to provide more precise measures that can be used in identifying this performance gap. In 2018, GAO confirmed that GSA developed an Asset Repositioning Tool to build upon and replace its tiering and core asset analysis measures. The tool uses 10 measures of asset performance related to customer, asset, and market indicators to determine an asset's performance. According to GSA, the tool allows for a more refined analysis in determining an asset's performance and enables GSA to identify and rank assets that should be held long-term and those which are low-performing and should be studied to determine their future place in the portfolio. GSA applied this tool to rank 612 of its assets, such as courthouses and office buildings, and identified 46 lower-performing assets for further evaluation. GSA considered these lower-performing assets for reinvestment or disposal and developed related strategies, including plans to dispose of nine of these assets. GSA intends to use the tool at the start of every fiscal year to analyze its portfolio and use the results to inform its investment decisions and decisions to hold or dispose of lower-performing assets. As a result of implementing its Asset Repositioning Tool, GSA is able to more precisely identify its low-performing assets as well as develop mitigation strategies for these assets. By having these more precise measures of asset performance, GSA is better positioned to evaluate its progress toward a sustainable portfolio in the long run and provide better information to decision makers inside GSA and in Congress to determine what further steps and resources are needed, if any, toward that end.
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