The Real Deal

As part of their drive to save money in tight budget times, states are turning to the private sector for help in managing their properties. Mitch Irwin, director of the Michigan Department of Management and Budget, notes that his state has let go more than 8,000 employees in the past year, a situation that offers an opportunity for consolidation of facilities. Some of those opportunities would be there anyway, Irwin says, pointing to the example of the state Department of Community Health, which is housed in 13 separate buildings in the Lansing area alone.

However, some of the opportunities are less obvious. With a real- estate portfolio of more than 650 leases, his department hired a private company rather than keep the real estate work in-house and expect each agency to have its own expertise in all the issues involved. The move to privatization saved more than $10 million last year, and Irwin expects the real estate firm to cut department costs by more than 10 percent in the coming year.

Similarly, Virginia has contracted with a private real estate firm to renovate two buildings in its capitol complex. "It saves money, and it allows the state of Virginia not to have to be the expert on everything," says Susan Pollard of that state's Department of General Services.

"Real estate is a major expense and if you manage that expense from a centralized department you will realize savings that an agency head who is focused on something else won't see," says Rolf Kemen, a managing director of CB Richard Ellis, a real-estate management firm that has worked with New Jersey, Virginia and other states.