The federal government, the largest occupier of commercial office space in the U.S., is re-evaluating its post-pandemic workplace strategy in a process that could lead to reduced footprints and depressed office demand in Washington, D.C., and across the country.
Are you ready as a developer to take advantage of this influx of new space?
President Biden's administration directed federal agencies to draft long-term policies for their workplace and remote work strategies, and they replied that they want maximum flexibility.
The GSA (General Services Administration) issued a directive to government agencies to shrink their leased office footprints, a trend that could have massive ripple effects across the U.S. commercial real estate market. There will be many instances where the government will either vacate buildings outright and consolidate into other locations or simply downsize as a function of the pandemic.
The GSA manages more than 7,800 federal office leases totaling more than 181M SF in markets across the country, according to lease inventory data it published in July.
The D.C. area has the largest concentration of those offices, but it is far from the only market with large federal office leases. Federal agencies have leases larger than 400K SF in Atlanta, Kansas City, Philadelphia, Chicago, and San Antonio.
The pandemic forced the federal government to shift thousands of employees to remote work, and like many private sector companies, agencies found they were still able to function. That discovery will lead them to incorporate more flexibility into their future work plans.
The prospect of federal agencies downsizing isn't a new one, as administrations have for years sought to use footprint cuts as a way to save taxpayer money. Landlords with large portfolios of government leases could be at risk of occupancy losses in their buildings as a result of the shift, but they are publicly deflecting concerns.
Now is the time to be ready if you are a developer. Below are four steps for a successful real estate planning process to be ready for all of these excess properties.
1. Investment Strategy
There are many types of real estate investment strategies. There are business strategies such as fix and flip, wholesaling, stabilized income, or value-add. The type of strategy you choose will determine your short- and long-term goals. You can also combine strategies to experiment with what kind of approach is best for you and your future income goals.
2. Real Estate Investment Goals
Real estate investment goals outline the outcome of your overall investment plans. You should outline two types of goals —short-term goals and long-term goals. Short-term goals are the small actionable steps that take you through to your long-term goals. Long-term goals outline your future real estate investment plans. For example, a long-term goal could be that you want to be a part of the ownership of ten office buildings. What steps do you need to take to own those ten office buildings (we need to focus on larger opportunities and we do not deal with residential homes)? These steps are your short-term goals.
3. Financing
With these new government-owned properties coming to market you will need to have your real estate investment strategy ready. Commercial properties for investment purposes typically require a minimum of 25% as a down payment and a debt coverage ratio of around 1.2:1.0. Discuss life insurance companies, CMBS, and commercial lenders (banks).
4. Back-Up Plan
Businesses fail every year, but real estate investors are prepared for possible worst-case scenarios by creating a backup plan. By preparing for this event, crucial strategies are set in place so you can address them if something happens to go wrong with your investment. Taking the time to complete a thorough real estate plan ensures you've researched everything you need to know before you begin investing in real estate.
Contact our team of experts at www.BHIbuilds.com to help you build your next project.
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