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Winstead Speaks at DCBIA March Meeting

As prepared for delivery

Remarks by
David Winstead
Commissioner, Public Building Service
U.S. General Services Administration
 DCBIA March Meeting
Washington, DC
March 15, 2007

Thanks, Toni Aluisi, and good evening everyone. It’s nice to see some old friends as well as a few who were at the Real Share Conference a couple of weeks ago. If I repeat something, please act as if it’s all new material!

I’m here tonight to talk about GSA’s federal presence in the nation’s capital.  It’s a good story, one I actually never mind re-telling as I speak to various groups. 

I’m now in year two of my tenure as Commissioner of GSA’s Public Buildings Service – P-B-S. It’s been an extraordinary experience.  Managing our piece of the federal government’s massive real estate portfolio – as well as all we do in areas ranging from design excellence to historic preservation and energy efficiency - has been a huge but invigorating challenge. A day rarely goes by when I don’t call on the experience I gathered at Wilkes Artis, Holland and Knight, at NAIOP and DCBIA, and as head of Maryland’s Department of Transportation to help me guide PBS, which is one of the largest public real estate organizations in the world. 

  • We have over 8,600 owned and leased assets; 
  • About 347 million square feet of rentable space across the U.S.;
  • An annual budget of some 8 billion dollars;
  • And we house roughly 1 million federal employees at 60 different agencies.

As I speak, PBS is working on over 190 new construction and repair and alteration projects. Together, that represents about 11 billion dollars and 51 million rentable square feet. 

  • The work is challenging, but it’s certainly paid off. Some of the successes in FY2006 included:
     
    GSA was the first agency to score “Green” on the President’s Management Agenda scorecard for real property asset management – and, just as important, we’ve been able to maintain that status.
  • $147.5 million in capital reinvestment from 55 underutilized properties.
  • We were able to sell 13 PBS properties and retain proceeds of $52 million for reinvestment in the portfolio. This is due to the GSA’s restructuring and reinvestment strategy where only tier-one assets remain in the inventory. These assets are ones that have a positive return on investment and are in good physical condition to meet customer housing needs.
  • We maintained vacant space at 4.3 percent – well below the industry average of 11.6 percent.
  • And lastly, we achieved about 74 percent of assets returning at least a humble rate of 6 percent return on equity and 81 percent of assets realizing positive funds from operations.

I’m proud of what we were able to accomplish in FY2006, and in FY2007 I have four main priorities.

  • My first is to improve GSA’s real property capital project planning and delivery. To achieve this, we are developing project monitoring and mitigation tracking tools that will be implemented by the end of third quarter. We are establishing national program standards for ownership of project data accuracy. To accomplish this, we are executing a national training strategy and action plan for project managers, as well as developing future leadership in the Office of Chief Architect.
  • My second priority is to improve GSA’s real estate leasing program by rightsizing our owned real property portfolio, and identifying opportunities in our leased portfolio to achieve cost savings.  Some of the ways we are doing this include: improving the implementation of the National Broker Contract by accessing better market information to leverage the capacity to deliver leased space; and by increasing focus and capacity on lease asset management. One of the successes this past year was our FBI program, where we quickly acquired customer lease space to meet their rapid growth since 9/11. We are working to do the same thing for the Census 2010 Program.
  • My third priority for FY07 is to continue to expand and strengthen GSA’s workspace and workplace delivery. PBS has refocused its core value proposition from space transactions and being a “provider of space” to being a “workplace solutions provider” with a customer-centric focus. By focusing on account management and addressing advanced customer requirements development, project delivery and customer demand forecasting, PBS should be well positioned to meet changing customer demands. We will do this by perfecting our basic approach to space delivery and by offering integrated solutions to customers offering the breadth of PBS and GSA’s technology services.
  • My fourth priority is to explore ways to leverage funding of real property capital projects to help offset the growing burden of capital funds. We are promoting increased investment in real property through the use of alternative financing options. This appears to be our best opportunity to support further investment and reinvestment in our portfolio in the future.

Tonight, I’d like to talk further about:

  • Our Leasing and Capital Construction programs;
  • Our FY08 budget request;
  • And how much money is being spent in the Washington Metro area, specifically the National Capital Region.

LEASING PROGRAM
As I mentioned, the leasing program is one of my top priorities this year. You can see from the graph here that leased space has almost quadrupled over the last four decades, reaching 172 million rentable square feet (rsf) in FY2006. As you all know, the majority of new requirements for traditional office space are met through leasing, and today almost half of customer space is in leased space.

In 2007, GSA is making lease payments to landlords in excess of $4.3 billion and is looking to expand the leased inventory by about 6 million rentable square feet of space this year, in order to satisfy our customers’ needs.  The Department of Homeland Security, the Judiciary and the IRS account for a significant portion of the projected inventory expansion.

In addition to federal agency new space requirements, each year we also have a significant portion of leases that expire.  To handle capacity issues, as you know, my predecessor – Joe Moravec – introduced the National Broker Contract to:

  • To improve our overall leasing program.
  • To help the agency deal with the increased leasing activity and loss of real estate professionals.
  • To allow employees to focus more on the customer, developing requirements and strategic planning.

Some of the successes we have realized are: the Lease Cost Relative to Market Measure. Initial results indicate that NBC leases have come in 13 percent below the market midpoint, which exceeds our PBS goal of 8.75 percent below market. Our customer agencies have also reaped benefits in direct rental decreases – nearly 7.4 million being credited back to them as a result of commission credits. Our goal for this year is to continue to strengthen the relationship between the broker and the realty specialist ensuring that we deliver best value to the customer. 

One thing you may want to be aware of in the federal leasing arena is the introduction of a new accessibility standard that will be incorporated into new leasing solicitations. For offers received after February 7, we’ve created a checklist that owners can use to evaluate compliance with the new standards on our website.

The new Architectural Barriers Act Accessibility Standard is a result of a recent evaluation by the U.S. Access Board of the various standards and its decision to merge them into a single standard for federal buildings. The standard addresses access to joint-use areas, accessible routes to primary function areas, restrooms, and other space and elements.  GSA typically handles over one thousand leases in a year that will be affected and estimates in the next 10 years the new standard will encompass most of the leased inventory.

Since the Oklahoma City bombing, the government has developed the Interagency Security Committee standards, known as ISC, for government owned and leased space. PBS has incorporated these standards into its solicitation for offers. These standards are designed to provide a consistent level of security to federal agencies in owned and leased space, which are commensurate with the agency’s mission-specific risks and conditions in the market.

These standards only apply to space above 150,000 rentable square feet, which account for only 2 percent of existing PBS leases. Half of our leases of this size, that are expiring at the end of the decade, are located in NCR.

Later this spring, we will be releasing our new Site Security Design Guide -- which will provide principles and best practices that should prove useful to designers working on both leased and owned buildings.

CAPITAL CONSTRUCTION PROGRAM AND FY 2008 BUDGET REQUEST

Looking ahead to FY08, the President’s budget request for the Public Buildings Service includes a request for new obligational authority of 8 billion dollars for new construction, repairs and alterations and rental payments.  In addition to the 8 billion, which will come from the Federal Building Fund, an additional appropriation of 345 million dollars is requested to support our 1.4 billion dollar capital investment program.  

NATIONAL CAPITAL REGION
That brings us to the Washington Metro area. As you can see, a lot of money is being spent in the National Capital Region.  NCR encompasses almost 100 million square feet of space in both leased and owned space. 

You know you’re in D.C. when people talk in acronyms and they actually understand each other…but I think most of you can follow the ones I’m about to throw out. If not, I apologize in advance – the acronyms just kind of grow on you after a while.

Some of the highlights of FY08 from our National Capital Region include 58 million for the Food and Drug Administration consolidation in Montgomery County, MD and 27 million dollars dedicated to infrastructure and site acquisition for St. Elizabeth's West campus in Washington, as well as another 319 million for consolidating various components of the Department of Homeland Security. 

FY 2008 Repair and Alterations Projects in the DC area include 172 million dollars for the Eisenhower Executive Office Building.   

FY 2008 request for rental of space is 4.4 billion that is a slight increase of the 2007 current figure of 4.3 billion.

As I mentioned earlier, my first priority is to improve  the capital construction program and the delivery of projects.  To save costs from material escalations on the supply side, we are looking to reduce the cycle time for project delivery by using a design build bridging contract, which would allow for a compression of design and construction activities, as well as early procurement of long lead items. By allowing the contractors to order material and equipment closer to the time it is needed, it will reduce escalation costs associated with contractor risk.

We are also considering "leverage purchasing" approaches to material and equipment frequently used in GSA buildings. We are considering materials, equipment and systems that could be standardized along all building types for example, doors, light fixtures, hardware, etc. We are at a very preliminary step in this analysis, and have a long way to go before this could be implemented.

Currently, our capital construction projects exceed $4 billion dollars. Now I’d like to run through some major projects in the National Capital Region:

  • Southeast Federal Center – GSA was given the authority to transform the 53-acres into a new neighborhood and as a result GSA was in the forefront developing 11 acres as the new headquarters for the Department of Transportation. 
  • This 1.35 million square foot complex is a build-to-suite lease  developed by the JBG Companies and designed by Michael Graves and Associates.
  • The Food and Drug Administration at White Oak, Maryland-This is a five-phased project to develop almost 3 million square feet of space at the White Oak Federal Research Center.  We are about two thirds completed and this facility is providing a state of the art complex in an environmentally sophisticated complex. The dedication for the next phase is coming up soon.
  • Suitland Federal Center—I had the pleasure of attending the dedication of the new headquarters for the Census Bureau last year.  This new building and a new satellite operations center for the National Oceanographic and Atmospheric Administration are transforming the Suitland Campus and revitalizing the entire Suitland community in Prince Georges County. This is the first headquarters that now incorporates the ISC standards.
  • Another new headquarters is almost complete for the Bureau of Alcohol, Tobacco, Firearms and Explosives or ATF at the intersection of Florida and New York Avenues in the NOMA area of the city. This new complex will serve as a magnet for additional office development.  GSA is now in the final stages of awarding a master lease for this space.  The successful bidder will sign a 10-year lease and assume responsibility for fitting the space out, recruiting retail tenants, and managing it.
  • At St. Elizabeth Hospital’s West Campus, we are working with DHS, and our congressional oversight committees to complete the master plan to transform this 180-acre site into a secure federal campus that will provide a significant new job base for the long-neglected Anacostia neighborhood.   Current milestones include completing the master plan concept by March with a final master plan by August.  

It’s clear that GSA is a prominent landlord in Washington and the leasing program is just as impressive.  Leasing in the National Capital Region encompasses about one fifth of the entire commercial infrastructure in the Metro area.  GSA currently pays about 1.6 billion dollars in annual rent with a total lease contract value of 18.8 billion dollars.

For FY 2007, we are in the market for 5.6 million square feet of space.  For smaller ones ranging from 2,000 to 60,000 square feet of space, the National Capital Region relies on its Advanced Automated Acquisition Program or AAAP, which took effect in August 2005. Under this program GSA issues monthly requests for space in Washington, Northern Virginia and suburban Maryland.  Offerors may update existing offers and make new ones every month as compared to the previous system that allowed this to occur twice a year.  This program is providing GSA a much timelier and market-responsive inventory of available leased space.

In FY 2007, existing lease replaces – 10 leases – 3.7 million square feet of space and new requires include 7 leases for 2 million square feet of space.  Customer agencies currently in need of space include components of the Departments of Homeland Security, Defense and State.

The impact of federal procurement is also influencing the economy in the Metro area.  Economist Steve Fuller of George Mason University has published several articles on this topic and reports that federal spending for all goods and services has grown from 12.6 billion dollars in 1990 to 52.6 billion in 2004.

The increase in procurement spending has accounted for 25 percent of new jobs generated in the Washington, DC, area.

The point here is that GSA’s consumption of office space is growing fairly slowly, while federal procurement activities are generating increased demand by the private sector for office space. 

Procurement activity in the DC metro area is most robust.  More money is spent here annually than in any single state in the country.  Federal procurement is now a major dynamic force in the regional economy and GSA does more procurement than any other non-defense agency in the government.

I’m pleased that our economy is remaining strong, despite the weak real estate market that exist in most other major American cities.  Federal office space helps provide stability and protection against downturns and continued growth in federal procurement offers a great boost to the regional economy.

In closing, I’d like to reiterate that it remains my top priority to improve PBS’s leasing and Capital Construction programs through the delivery of our products and services. President Bush has challenged all federal agencies to find new and smarter ways to do business and move toward a government that is citizen-centered and results-oriented, which is the basis for our FY2008 budget request. As I’ve shown you through a few examples, the Public Buildings Service has a significant presence in our nation’s capital and will continue to.

I want to thank you for allowing me the opportunity to join you today.  I encourage you to continue your good work building this great city.  And I would invite you – if you are not already working with us at GSA – to consider doing so.  I think you will find it a rewarding experience and a wonderful opportunity to do something for the American people.

I’d be happy to take any questions.