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entitled 'Financial Condition of Federal Buildings Owned by the General 
Services Administration' which was released on August 8, 2002. 

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United States General Accounting Office: 
Washington, DC 20548: 

August 8, 2002: 

The Honorable Pete Sessions: 
House of Representatives: 

Subject: Financial Condition of Federal Buildings Owned by the General 
Services Administration: 

Dear Mr. Sessions: 

As the federal government’s real property manager, the General Services
Administration (GSA) manages over 1,700 federally owned buildings that 
have about $5.7 billion in identified repair and alteration needs. 
During our work for you on public-private partnerships, [Footnote 1] we 
discussed that GSA had or was at risk of having a negative net income 
from several of its buildings because of their deteriorating 
conditions. Several buildings were vacant or at risk of losing their 
tenants because of the condition of the buildings. Although GSA does 
not receive rental income on vacant buildings, it still incurs expenses 
to operate key building systems and secure the buildings. You asked us 
to provide information on the financial condition of GSA’s owned-
building inventory. As we began our work, however, GSA’s Public 
Buildings Service (PBS) also began a review to, among other things, 
evaluate the financial condition of each of GSA’s owned buildings. As a 
result, as agreed with your office, we did not conduct a review. 
Instead, this letter summarizes the results of PBS’s efforts to date 
and its future plans regarding the owned-building inventory. To obtain 
this information we reviewed briefings and other PBS documents and 
interviewed PBS officials. We did not independently verify the 
information provided. PBS officials provided comments on a draft of 
this letter, which we incorporated. 

PBS’s Commissioner has described the owned-building inventory as 
predominantly aged with reinvestment needs that far exceed the 
capabilities of the Federal Buildings Fund (FBF). Repairs and 
alterations, as well as other capital and operating expenses associated 
with maintaining federal buildings, are financed by the FBF, a revolving
fund administered by GSA. Rents that GSA receives from federal agencies 
are deposited into the FBF. The FBF has not generated sufficient income 
over the years to finance all the needs of the GSA buildings. For 
fiscal year 2002, an aggregate amount of $6.1 billion was available in 
the FBF for expenditure. This amount was authorized for expenditure as 
follows: 48 percent for rental payments, 29 percent for building 
operations, 14 percent for repairs and alterations, 6 percent for 
construction, and 3 percent for installment payments for acquisitions. 
Although authorized funding for repairs and alterations within the FBF 
has increased in 6 of the past 10 years, GSA does not expect the FBF to 
generate enough revenue through rental income to meet all the current 
and future needs of the current owned-building inventory. GSA also
does not expect to receive direct appropriations to meet such needs. 

Given the backlog of repair and alteration needs for federal buildings 
and its limited financial resources, [Footnote 2] in June 2001 PBS 
undertook a review of GSA’s owned-building inventory. Its goal was to 
develop a strategy to best align the portfolio with PBS’s mission of 
providing responsible asset management. In January 2002, PBS’s 
Commissioner approved a strategy to restructure and reinvest in GSA’s 
owned-building inventory. PBS has stated that each building in the 
inventory should serve a predominant federal need and, at a minimum, 
generate sufficient income to cover its own upkeep. It concluded that 
GSA could no longer afford to keep buildings in the inventory that do 
not generate a positive income to the FBF. 

GSA manages a total of 1,745 federally owned buildings. PBS used fiscal 
year 2001 data to conduct financial analysis of 1,375 of its owned 
buildings. Each building was placed into one of the four 
categories—nonperforming, poor, good, and solid—based on the results of 
the financial analysis. According to PBS, the 370 buildings that the 
team did not analyze were primarily border stations for which PBS was 
already working with the tenant agencies to establish rents that would 
cover these buildings’ expenses. 

* Buildings termed “nonperforming” do not meet the lowest test of 
generating sufficient income to cover their expenses and to set aside a 
minimal amount, 2 percent of the building’s replacement cost, for 
future repair and alteration needs or replacement of the building. PBS 
plans to limit the capital expenditures made in these buildings. 

* Buildings termed “poor” pass the lowest test of generating sufficient 
income to cover their expenses and the minimal reserve. However, these 
buildings have less than a 6 percent return on investment (ROI), and 
thus GSA may not consider them to be the best investment of resources. 
ROI shows how much the building is generating in income compared with 
the value of the building. These buildings are to be examined further 
to determine whether reinvestment in the buildings would likely yield 
higher returns. For example, the ability to recapture vacant space and 
make it available for rent could yield a high return. 

* Buildings termed “good” pass the prior two tests and thus have an ROI 
of at least 6 percent, but the conditions of the buildings are 
considered poor and they have high reinvestment needs. According to 
PBS, these buildings are probable candidates for reinvestment, if funds 
are available. 

* Buildings termed “solid” are those that generate more than 6 percent 
ROI and are in good condition, thus having relatively low reinvestment 
needs. These buildings would likely be held for the long term and would 
be priority reinvestment candidates in order to keep them from 

Figure 1 shows the results of PBS’s analysis of 1,375 buildings with a 
total of 180.2 million rentable square feet of space. About half of the 
buildings, 693, fell into the “nonperforming” and “poor” categories, 
combined. However, these 693 buildings accounted for only 28 percent, 
or 50.1 million, of the rentable square feet of space. The other 682 
buildings fell into the “solid” and “good” categories, combined. These
buildings accounted for 72 percent, or 130.1 million, rentable square 
feet of space. 

Figure 1: Percentage of Buildings and Rentable Square Feet of Space, by 
Financial Category: 

[See PDF for image] 

This figure is a vertical bar graph depicting the following data: 

Financial category: Nonperforming; 
Number of buildings: 570 (approximately 42%); 
Rentable square feet, in millions: 31.1 (approximately 17%). 

Financial category: Poor; 
Number of buildings: 123 (approximately 9%); 
Rentable square feet, in millions: 19 (approximately 10%). 

Financial category: Good; 
Number of buildings: 129 (approximately 9%); 
Rentable square feet, in millions: 30 (approximately 15%). 

Financial category: Solid; 
Number of buildings: 553 (approximately 40%); 
Rentable square feet, in millions: 100.1 (approximately 56%). 

Source: Public Buildings Service. 

[End of figure] 

Now that the owned buildings have been categorized based on their 
financial performance, the asset managers for each building, who are 
located in GSA’s regional offices, are responsible for developing 
building-specific strategies. These strategies are to reflect the 
financial categories of the buildings. According to PBS officials, the
strategies for the nonperforming buildings should be developed by 
December 31, 2002. They expect the strategies for the other buildings 
to be easier to develop—since for many of them the strategies will be 
to hold and maintain the buildings—and, thus, hope to complete them by 
the end of fiscal year 2002. PBS’s Assistant Commissioner for Portfolio 
Management expects all the strategies to be fully implemented within 5 
years; by that time, he expects virtually all of GSA’s owned buildings 
to be self-sustaining and to serve a predominantly federal need. 

Recognizing that responsibility for each GSA building is spread among 
its asset managers, who are located in its 11 regional offices, PBS 
created the Workout Task Force in its headquarters to manage and 
coordinate the development and implementation of the strategies. The 
task force has been working with, and is to continue to work with, the 
individual building asset managers regarding both the development and 
the implementation of the strategies. The task force plans initially to 
focus its efforts on those buildings in the nonperforming category 
because they are the biggest financial drain on the FBF. According to 
task force officials, possible strategies for nonperforming buildings 
include: disposal; exchange with other federal, state, or local 
agencies; renegotiation of rents; outlease to nonfederal tenants; 
transfer of the building to the tenants; and public-private 
partnerships, if GSA is provided this authority. According to PBS, it 
has already begun to implement the strategies for a number of 
buildings. For example, PBS said that many of its nonperforming 
buildings have been referred for disposal, and the number of buildings 
in the disposal process has increased significantly since last year. In 
addition, PBS said that it is in the process of renegotiating rents on 
several nonperforming buildings. 

PBS plans to make its building assessment process continual. According 
to PBS, it plans to review the financial performance of each building 
annually, recategorize the buildings if necessary, review the strategy 
for each building, and adjust the strategies when necessary to reflect 
the building’s current financial performance. 

Please contact me at (202) 512-2384 or at if you or your 
staff have any questions. We are sending copies of this letter to the 
appropriate congressional committees. We will also make copies 
available to others upon request. 

Sincerely yours, 

Signed by: 

Bernard L. Ungar: 
Director, Physical Infrastructure Issues: 

[End of correspondence] 


[1] U.S. General Accounting Office, Public-Private Partnerships: Pilot 
Program Needed to Demonstrate the Actual Benefits of Using 
Partnerships, GAO-01-906 (Washington, D.C.: July 25, 2001). We define a
public-private partnership as an arrangement in which the federal 
government contributes real property and a private entity contributes 
financial capital and has the borrowing ability to redevelop or 
renovate real property. 

[2] U.S. General Accounting Office, Federal Buildings: Funding Repairs 
and Alterations Has Been a Challenge—Expanded Financing Tools Needed, 
GAO-01-452 (Washington, D.C.: Apr. 12, 2001). U.S. General Accounting 
Office, Federal Buildings: Billions Needed for Repairs and Alterations, 
GAO-00-98 (Washington, D.C.: Mar. 30, 2000). 

[End of section] 

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