Governments Selectively Privatizing Real Estate Management

Article excerpt

Outsourcing of services has become a way of life in the private sector. But to what extent has the public sector decided to outsource or privatize real estate functions?. . .What services are better handled externally? . . . Are large or small firms the winners of these contracts?. . . Have the results of outsourcing been satisfactory? To determine these answers, American City and County and MBIA & Associates Consulting/Bartram & Cochran recently conducted a survey and interviewed key federal, state, and local government staff and vendors.

While a municipality's real estate function is usually among its largest sources of assets and costs, management of this area runs the gamut from a highly centralized function to one that is largely ignored. Overall however, appreciation for the importance of real estate - as well as the need to carefully utilize both internal and external resources in its management - appears to be increasing.

Results of the survey, particularly when compared to a similar poll conducted five years ago by John Hentschel, CRE, (see article page 9), show that governments are bringing in-house the capability to handle the regularly occurring, day-to-day real estate functions such as strategic decision analysis and joint ventures. At the same time, many governments continue to rely on external expertise where appropriate.

Highlights of the survey results include:

Forty percent of the respondents said that the importance of the real estate function had increased in the last year, compared with only six percent who reported a decline.

Sixty-six percent said that real estate management was centralized, a structure that appears to allow for a better strategic focus.

Only eight percent of the respondents reported privatizing all or part of their real estate management function in the last year.

Services outsourced typically involved tasks that were shorter in duration, where adding staff was not justified.

The survey had 90 respondents representing some of the largest cities in the country as well as some of the smallest jurisdictions. Additionally, interviews were conducted with 11 state agencies that had not responded to the survey. Results were compared to a similar 1993 poll conducted by City & State Magazine and The Counselors of Real Estate - showing a dramatic change in how services are handled over that time.

As seen in Figures 1 & 2, the trend toward outsourcing continued in some areas. The sharpest changes over the last five years were:

Other changes over the last five years include:

Funding availability was cited as the most important factor influencing real estate management - by 53 percent of the respondents, compared to 46 percent in 1993.

Respondents identifying asset and facilities management as the most important factor increased from nine percent to 24 percent.

The importance of environmental preservation identified as a major concern has fallen from 30 percent to 12 percent.

LOCAL GOVERNMENT HAS CHANGED SELECTION PROCESS

Five years ago, a plurality of jurisdictions responding selected consultants from a list of pre-qualified firms. In the chart labeled "Method of Selecting Counselor of Real Estate" (located on the "Summary of Survey Results, " page 8), shows that municipalities now look almost equally to advertised public bid, sole source selection, and pre-qualified firms. Respondents who were interviewed explained that the biggest shift was that vendors who were on the pre-qualified list have now become their service providers.

This trend toward forming long-term relationships with vendors is rooted in increasing efficiency. Not only are the municipalities likely to obtain better pricing, they are getting a shorter learning curve from a better-prepared vendor.

WHAT THEY DON'T KNOW CAN HURT THEM

One surprise in the 1998 survey responses was the frequent inability of respondents to provide information on the value of real estate, the number and types of property, annual leasing costs, or management method. …