GSA’s Public Buildings Service (PBS), after noting highly differential financial performance among its more than 1,750 Federal properties, recently adopted a portfolio strategy to restructure its aging federally owned inventory of more than 185 million square feet.
The strategy is to restructure the owned portfolio so it consists primarily of strong income producing properties. An essential element of the strategy is to workout or dispose of those assets that are not capable of generating enough cash flow to fund their own operations, repairs, and capital needs. PBS is obliged to undertake this strategy because as a Federal agency, it is entirely dependent for reinvestment capital upon the rents it receives from tenants who occupy the buildings. PBS has no authority to borrow against asset value or future property cash flows.
As a first step in implementing the strategy, all properties in the owned portfolio have been subjected to a set of diagnostic tests, and the portfolio has been stratified into four classes or tiers: non-performing assets, under-performing assets, performing assets with high reinvestment needs, and performing assets with low reinvestment requirements.
Following this stratification, several independent, but related actions have been undertaken to further implement the strategy. The 570 non-performing assets have been posted to a national watch list for workout action or disposal. A national Work Out Task Force (WOTF) has been established to begin the process of systematically examining each non-performing property for possible action to recover the property or hasten disposal. The PBS capital reinvestment decision-making process has also been recalibrated to enable both the measurement of return on investment and the selection of proposed reinvestment projects on the basis of that return. PBS has also begun, for the first time, to appraise its owned inventory, so that each asset’s performance is measured in terms of return on value, and reinvestment decisions take into account present asset worth, and not just marginal reinvestment costs.
The combined effect of these actions has been to change the course of capital decision-making. By following the strategy, PBS expects to improve the efficiency of the retained portfolio by enabling more net income to be generated per square foot, thereby generating more income available for reinvestment. The end result of continued implementation of the portfolio strategy is a smaller but higher quality and better maintained owned portfolio, one which is better aligned with the mission of PBS to provide quality workplaces at a competitive cost to meet the general purpose space needs of Federal agencies.
For more information, contact Mr. Ronald E. Kendall at (202) 501-4940 or via e-mail at ron.kendall@gsa.gov
