In the fight against the COVID-19 pandemic, many dedicated state and local government professionals have been going above and beyond to serve their communities. While ensuring employee and public health is a continuing priority, reducing costs is also critical. For government executives, now is the ideal time to leverage one of government’s most valuable assets — its real estate — to help conserve resources.
Transforming your real estate portfolio and management will reduce costs today, while positioning your organization for long-term savings, agility and resiliency. Innovative real estate approaches can bring new efficiencies, while also supporting your organizational mission, culture and human capital. And, you can even advance broad policy goals, like upgrading aging infrastructure.
New government real estate ideas are percolating nationwide. One innovative idea taking hold in state government is the interagency “pod” — a strategically located supercenter providing multiple constituent services. In each pod, multiple agencies can share conference rooms, reception areas and other spaces, enabling agencies to reduce office costs while improving access to services.
As a leader, you have multiple options at your fingertips to improve cash flows. Whether your goal is to reduce expenses today, create sustained savings through more efficient real estate management, or leverage your assets to boost revenue, the following 10 strategies will help you operate more efficiently to support essential programs and improve constituent service.
Cost savings strategies to pursue today
Real estate decisions don’t always happen quickly, especially when your organization is responding to the urgent needs of the pandemic. Yet, some strategies and tactics can lead to savings today and support your long-term strategies for tomorrow. The following are practical steps to explore now:
1. Analyze your real estate portfolio to uncover hidden costs. Your portfolio data, including facilities management, operating and maintenance expenses, will reveal hidden costs beyond mortgage or lease payments — and savings opportunities. For example, learning that a building consumes an above average amount of energy is an opportunity to determine the root cause of the large energy expense.
2. Reduce excess space. How much space do you own and lease today? Your portfolio data will show you. How much will you need in the one, two or five years ahead? If you continue remote work policies adopted during the pandemic, you could reduce occupancy costs by as much as 10 percent to 20 percent.
3. Reduce leasing costs. Nationwide, space and sublease vacancies are growing by leaps and bounds, creating a tenants’ market. You may be able to “blend-and-extend” early lease renewals, extending the lease length in return for a lower rent rate, additional capital improvements, fewer rentable square feet or other concessions.
4. “Mothball” buildings that are temporarily underutilized or unoccupied. If your organization has adopted remote work during the pandemic, your portfolio may include facilities that are currently underutilized. Data-driven analysis can help you decide whether to fully pause certain buildings for the time being. To keep mothballed buildings functional, one option is to use outsourced facilities management services instead of full-time staff.
5. Leverage your property data to uncover space utilization opportunities. By combining your real estate data with business intelligence and analytics tools, you can open the door to continuous portfolio savings through smart space utilization. While some upfront investment may be required, you also have the option of accessing leading real estate technologies through a real estate service provider.
6. Leverage variable capital project management. By using outsourced project/program management and development services, you can avoid ongoing capital staffing costs when major projects are put on hold for economic or political reasons. When a project is primed to move forward, a private-sector partner can help you procure qualified contractors, monitor contracts and manage the project on a limited-term basis.
7. Reduce facility management costs through outsourcing. Facilities management (FM) outsourcing can be a powerful means of achieving savings and flexibility. Savings arise not only from greater efficiency and volume purchasing, but also transferring long-term pension liabilities to the private-sector partner. One pioneering state has saved more than $50 million over five years through FM outsourcing. An important aspect of the partnership is that the FM service provider hired most of the state’s FM personnel to continue working in their facilities.
Generate revenues, finance projects and transfer risk
Non-traditional means of revenue generation and economic development can help you conserve resources and preserve vital programs. The following are creative strategies to consider:
8. Leverage public-private partnerships (P3s) to fund infrastructure. In the new normal of dramatic fiscal constraints, a P3 offers a creative option for funding and delivering planned core infrastructure projects, while transferring risk to a private-sector partner who assumes responsibility for long-term maintenance and capital renewal. Government organizations are using revenue-producing P3s to invest in toll roads, bridges, parking facilities, airports and other infrastructure projects. Typically, the agency receives a lump sum, annual payments or a share of revenue streams in exchange for allowing a private-sector partner to build, operate and maintain an asset.
Fairfax County, Va., for instance, has forged multiple P3s to improve public amenities and infrastructure, support transit-oriented development, and provide workforce, affordable and senior housing in mixed-use communities — while saving more than $2 million to direct toward ensuring quality of life for all.
9. Monetize your real estate assets. Monetizing your real estate assets can create additional revenue streams and unlock capital for alternate uses, sustainability and other policy goals. Infrastructure options include leasing land or rooftops to solar power developers, leasing air rights or renting out space for telecommunication uses such as antennas. For example, one of the five largest U.S. transit agencies, Washington Metropolitan Area Transit Authority, is partnering with a solar energy provider to install 17 acres of photovoltaic solar panels at four Metrorail stations.
10. Revitalize underutilized land through ground leases. Whether it’s a vacant piece of land, an aging and neglected building, or a site better suited to other public uses, a legacy real estate asset can become a drain on resources. By ground leasing an underutilized asset to a private-sector developer, you can generate long-term rental income, jobs, property and sales tax revenues — while protecting your mission and serving the public.
Begin your cost savings journey
Thriving during and after the pandemic will test government organizations as never before. Your real estate team can play a leadership role in helping to reduce costs, increase flexibility and find innovative ways to deliver constituent services. While the present moment is challenging, it’s also an opportune time to bring new ideas to the forefront, or revisit past initiatives that were once considered too risky to pursue.
There’s no time like a fiscal challenge to spur new thinking and reimagine government real estate. To start transforming your government real estate management, read 10 ways for government leaders to reduce costs and discover more innovative ideas to reduce costs and recapture revenue.
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. A Fortune 500 company with annual revenue of $18.0 billion in 2019, JLL operates in over 80 countries with a global workforce of nearly 93,000 as of June 30, 2020. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.
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