The Portfolio Restructuring initiative is a policy accompanied by a series of practices. The policy, adopted in 2001, will create an inventory that consists primarily of strong, income-producing properties. This innovation also seeks to eliminate assets that have high capital reinvestment requirements. While culling non-performing or obsolete properties from real estate portfolios is standard practice in the private sector, this policy represents a dramatic innovation in the public sector.
There are a number of new, as well as existing, practices, that are being used to implement this policy. Paramount of these is a set of newly developed asset diagnostics that apply quantitative tests to determine whether an owned asset meets certain income thresholds and does not have unacceptably high reinvestment requirements. Based on the results of these tests, assets are then grouped into performing, under performing, or non-performing.
The genesis of the portfolio restructuring policy and practices was multi-fold. For several years prior to its development, studies had indicated compression of the inventory in terms of its income producing ability. In fiscal year 2002, 187 buildings, approximately 99.2 million rentable square feet, or 13 percent of GSA’s owned inventory generated 90 percent of all funds from operations. The average age of the inventory is over 40 years old and the amount of funds typically appropriated by Congress for capital reinvestment is not enough to cover the cost of upkeep. As of last fiscal year there is a short-term need of $5.5 billion and a long-term need of $9 billion.
The restructuring policy initiative, in merely one full year of operation, was responsible for a dramatic impact on key indicators that measure the state of the portfolio. The areas of improvement include:
- Improved return on the value of the portfolio
- Overall decrease in total reinvestment needs
- Improved space quality
Much of this change is attributable to a dramatic increase in the number of disposals-from 11 in fiscal year 2001 to 73 in fiscal year 2002.
For more information, contact Mr. Ronald E. Kendall at (202) 501-4940 or via e-mail at ron.kendall@gsa.gov
