United States General Accounting Office

GAO Report to Congressional Requesters

April 1996 OVERSEAS REAL

ESTATE

Millions of Dollars

Could Be Generated by

Selling Unneeded Real

Estate

G O A

years

1921 - 1996

GAO/NSIAD-96-36

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-266138 

April 23, 1996

Congressional Requesters

The Department of State owns more than $10 billion in real estate at 

200 locations overseas. We reviewed State’s efforts to identify and sell

excess or underutilized real estate and to use the proceeds for other

high-priority real property needs. In 1995, we reported on the potential

budget savings that selling high-value properties in Tokyo could have and

on the problems in State’s management of overseas real property.1

 This

report (1) identifies real estate at other locations that could possibly be

sold to provide funds for other real estate needs, (2) sets forth the

problems State has in deciding what properties to dispose of, and

(3) discusses how State uses the proceeds from properties it does sell.

We conducted this review under our basic legislative responsibilities and

are addressing it to you because of the budget implications of buying and

selling buildings abroad.

Background State annually receives over $400 million in appropriated funds for buying

and maintaining buildings abroad. It also has legislative authority to sell its

real estate and use the proceeds to buy or improve other real estate and

furnishings without further congressional approval. State’s Office of

Foreign Buildings Operations (FBO) is responsible for establishing and

overseeing policies and procedures for State’s real property, including

approving the disposition of excess, underutilized, or uneconomical

properties. These responsibilities are carried out in cooperation with the

embassies.

Results in Brief As of October 1995, State had a list of over 100 properties for potential sale

valued at $467 million. However, we identified other properties worth

millions of dollars not on the list that are potentially excess to State’s

needs or have a questionable value and are often expensive to maintain.

1

In April 1995, we reported that State owns a deputy chief of mission residence in Tokyo, Japan, which

was valued at $92 million in 1991. A replacement residence could have been provided for $4 million on

other State-owned property, but State did not sell the high-value property. Overseas Real Estate:

Inaction on Proposals to Sell High-Value Property in Tokyo (GAO/NSIAD-95-73, Apr. 7, 1995). Our

May 1995 report discusses the progress made and some of the problems still facing the Department in

real property management. State Department: Additional Actions Needed to Improve Overseas Real

Property Management (GAO/NSIAD-95-128, May 15, 1995).

Page 1 GAO/NSIAD-96-36 Overseas Real Estate
B-266138 

FBO has not developed a systematic process for identifying and disposing

of excess property. As a result, FBO and embassies are sometimes unable

to expeditiously (1) reach agreement on properties to sell, (2) move

forward on sales, and (3) determine the use of proceeds. State officials

told us that host government sensitivities and other factors must be

weighed against the economic benefits of selling property. Resolving these

considerations can delay potential sales for years.

FBO sold almost $53 million in real estate during fiscal year 1995. However,

it did not (1) routinely use the sales proceeds for State’s highest priority

real property needs, (2) account separately for the use of the sales

proceeds, or (3) use the proceeds to offset its appropriation request for

such needs. U.S. embassies involved in sales are usually given first priority

in using sales proceeds. FBO believes that embassies will not cooperate in

identifying excess properties unless the embassy receives first

consideration on how to use the proceeds. How the proceeds are used is

not justified and funded through the regular appropriation process.

Because of the embassies’ strong interests in the sale of their real estate

and the use of the sales proceeds, as well as the difficulties FBO and the

embassies have in resolving disputes, we believe that the Secretary of

State should appoint an independent panel to decide which properties

should be sold. The reasons for retaining any property should be weighed

against the financial interests of the State Department and the U.S.

government.

Additional Property

Could Be Listed for

Potential Sale

From 1990 to 1995, State made real estate sales totaling $133 million,

including $48.8 million from the forced sale of property and property

rights in Singapore because of road construction.2

If you exclude the Singapore transaction in 1991, sales averaged less than

$4 million annually from 1990 to 1993. Real property sales increased to

$16 million in 1994 and $53 million in 1995, but a significant amount of

property has yet to be sold from FBO’s list of properties available for

disposal. Both FBO’s October 1994 list and a second list submitted to the

Office of Management and Budget in 1995 had about 100 properties listed

for sale. Properties on the 1994 list were valued at $250 million. One year

later, FBO added high-value properties in Manila, Singapore, Paris, and

Bangkok to its list, bringing the total value of properties available for sale

2

Sales normally occur because State determines that the property is no longer needed, but the

Singapore sales were forced because of road construction by the host government. The proceeds were

largely used for replacement property.

Page 2 GAO/NSIAD-96-36 Overseas Real Estate
B-266138 

to $474 million. About one-third of the properties on the 1995 list were

estimated to sell for $1 million or more and accounted for over 90 percent

of the anticipated revenue. (See app. I for the list of properties.) In

addition, State holds other property that it could potentially sell that was

not on these lists. These properties are worth millions of dollars and

include

• properties that have been retained at closed posts, including Zanzibar,

Tanzania, and Alexandria, Egypt;

• properties that are vacant, unneeded, or unsuitable for the purposes for

which they were acquired, including some in Dakar, Senegal, and Rabat,

Morocco; and

• high-value properties that are oversized or not needed in Hamilton,

Bermuda; Buenos Aires, Argentina; Prague, Czech Republic; and Budapest,

Hungary.

In addition, several of these unsold properties continue to incur high

operation and maintenance costs. For example, in 1993, the embassy in

Buenos Aires reported operating costs on the above property had doubled

to almost $500,000 and major maintenance costs had risen to about

$1 million. (See apps. II through IV for a detailed discussion of the above

properties.)

No Systematic

Process to Identify

and Dispose of Excess

Property

State has no systematic process to identify excess properties and to

dispose of them. The Foreign Affairs Manual (6 FAM 782.1) requires each

post to periodically identify and report on properties that are (1) excess to

post requirements, (2) not being fully utilized, or (3) uneconomical to

retain. However, embassies are not required to annually certify that they

complied with 6 FAM 782.1. Further, FBO officials could provide no evidence

embassies submitted excess property reports pursuant to this provision.

As the single real property manager for nonmilitary U.S. government

property overseas, FBO has authority to dispose of properties that become

surplus, underutilized, or uneconomical (6 FAM 713.1) and to determine the

use of sales proceeds (1 FAM 215). In practice, FBO does not normally

proceed with a sale unless the embassy agrees, and it tries to reach

agreements with the embassies on the sale of property and the use of sales

proceeds.

According to FBO officials, property, such as that on the October 1994 list,

is identified for sale by the embassies, FBO officials, State’s Inspector

General, and ad hoc requests to the embassies by FBO. However, embassies

Page 3 GAO/NSIAD-96-36 Overseas Real Estate
B-266138 

lack incentives to identify, report on, and sell excess or underutilized

property unless they can use the proceeds for their own needs. Further,

when embassies sell property, it creates additional work for them. FBO

officials’ contend that the totality of such actions constitutes a system for

identifying real estate that should be sold. We do not believe that these

actions constitute an organized system for identifying these properties.

Our review showed that embassies have held unneeded property for years

without an intended purpose, and in some cases, they do not know why

the property was ever bought. For example, a lot in Burma, purchased in

1948 for an unknown purpose, is being used to store shipping containers.

In some cases, the embassies and FBO disagree on selling identified

property. We found several cases where embassies and FBO have had

protracted and costly disagreements regarding the use or sale of property

and use of potential sales proceeds. In Brasilia, Brazil, the embassy and

FBO had a standoff for over 2-1/2 years over whether (1) to sell vacant lots,

which were bought in the early 1960s, and use the proceeds to renovate a

29-unit apartment building or (2) to sell an apartment building and other

property and use the proceeds to build residences on the vacant lots. The

embassy emphasized that the apartment building is in an extremely poor

location. Also, according to FBO officials, the lots are located in the best

parts of Brasilia, and there is a stigma attached to living in apartments in

Brasilia. FBO indicated that it was cheaper to renovate the apartment

building than to build private residences on the vacant lots. Further, legal

restrictions prohibit the embassy from constructing apartments on the

vacant land. During the time of this dispute, the embassy spent 

$580,000 annually to lease housing while the 29 apartments remained

vacant. (See app. V.)

An FBO policy specifies that unresolved disputes will be submitted to the

Assistant Secretary for Administration for further review and discussion

with senior State management. However, disputes sometimes drag on for

years. Of the cases that we reviewed, the Assistant Secretary was involved

only in the Brasilia housing dispute, and then only after the dispute had

been ongoing for 2-1/2 years.

We believe there should be a standard procedure whereby the embassies

and FBO, at least annually, formally present their positions to another

authority. This would help mitigate the conflicting interests of the State

organizations involved and the difficulties they have sometimes in

expeditiously reaching an agreement on the sale of property and the use of

Page 4 GAO/NSIAD-96-36 Overseas Real Estate
B-266138 

proceeds. It could also help alleviate the inherent reluctance to forward

matters to a higher level for decision.

FBO Has No System

to Account for and

Ensure That Proceeds

Go to Most Urgent

Needs

FBO has not developed a procedure for routinely using sales proceeds to

meet prioritized worldwide requirements. As an incentive for embassies to

agree to a sale, FBO normally gives embassies that sell property first

consideration when determining the use of sales proceeds. These uses are

usually not justified in the annual congressional budget. FBO evaluates the

legitimacy and economic soundness of each proposal, but it does not

routinely weigh the proposal against the needs of other embassies.

We did find a few cases where FBO worked with the embassies to identify

uses for the proceeds, rather than redirect the proceeds to other countries

with greater need. For example, after the consulate in Lyon, France,

closed in June 1992, the consul residence was sold in April 1995 for

$613,000. In May 1992, the embassy in Paris requested to use the sales

proceeds. Initially, FBO indicated that the proceeds should be made

available for use in other countries, but the embassy objected, and FBO has

been working with the embassy since 1994 to identify ways to use the

proceeds in-country.

For any sales proceeds that will not be used in the country where the sale

occurred, FBO’s policy is to use them to buy property in countries with high

lease costs. According to FBO officials, they have developed a list of

countries where leasehold costs are high, expected to rise, and offer

optimum investment opportunities. Even though this appears to be a move

in the right direction, FBO did not provide us with its plan for using

proceeds to meet this objective. FBO officials maintain that they need the

flexibility to use the proceeds for other purposes.

In contrast to FBO’s case-by-case approach to the use of sales proceeds,

FBO determines critical construction and maintenance needs at posts and

establishes funding priorities for the use of appropriated funds. For

example, all posts are evaluated against established criteria in preparation

for the 5-year budget. Furthermore, embassies’ annual requests for

maintenance funds for special projects are weighted and ranked against

requests from all other posts, and those with the highest rankings are

generally funded.

FBO officials said they cannot use the same approach for sales proceeds

because the sales process is uncertain and they need flexibility in using

Page 5 GAO/NSIAD-96-36 Overseas Real Estate
B-266138 

the funds. Our review showed that through fiscal year 1991, State

estimated the potential sales proceeds and included them as offsets to its

appropriation requests. According to FBO, it does not do this now because

of the long time required for developing budget estimates, the volatile

nature of overseas real estate markets, and the complexities of marketing

high-value properties. Even though State has the authority to retain

proceeds from real estate sales, and sales proceeds are uncertain, FBO and

embassies are using proceeds for real property purposes not justified and

funded through the regular appropriation process. This ad hoc process

essentially creates an off-budget fund.

According to FBO documents, of the $16.3 million in fiscal year 1994 sales,

$6.3 million, or about 39 percent of the proceeds, were designated for use

in the country where the sales occurred. About $2 million of the

$6.3 million were to be used for replacement property and $4.3 million for

other kinds of construction. Of the remaining 61 percent, 35 percent was

made available for use in other countries, and 26 percent had no specific

use designated.

Although State subsequently reports to the Congress on the use of sales

proceeds, the reliability of the information is questionable because

proceeds are commingled with appropriated funds and expenditures from

sales proceeds cannot be distinguished from other funds. Consequently,

FBO attributes the use of sales proceeds to certain projects. FBO officials

are considering the feasibility of separately accounting for sales proceeds

to better manage and program them.

Recommendations The current process State uses to identify and sell unneeded real estate

has not been effective, mainly because of parochial interests among

various parties. As a result, State has a large inventory of excess real

estate. In light of (1) the revenues that could be earned from the sales of

high value property, (2) the cost to the U.S. government to maintain excess

properties, and (3) the likely increase in excess properties that will result

from announced post closings, we recommend that the Secretary of State

establish an independent panel to make recommendations regarding the

sale of excess real estate to reduce the current inventory of property. In

establishing this panel, the Secretary should consider appointing

representatives from the Office of the Inspector General and the Bureau of

Finance and Management Policy as well as private sector representatives

with overseas real estate experience. Including these representatives

Page 6 GAO/NSIAD-96-36 Overseas Real Estate
B-266138 

could help ensure that the panel’s actions reflect the financial needs of the

Department of State and the interests of the taxpayer.

Further, to provide a routine process for expeditiously resolving

disagreements between FBO and the embassies, we recommend that the

Secretary require FBO and the embassies to report annually to the Under

Secretary for Management on all properties identified as excess where FBO

and the embassies have not agreed on whether to retain or sell such

properties. As part of the process, the Secretary should require the

embassies to certify annually that they have (1) reviewed their property

holdings to identify properties that are excess to embassy requirements,

not being fully utilized, or uneconomical to retain and (2) reported any

excess property to FBO.

We also recommend that the Secretary of State

• include estimated receipts from real estate sales in the annual

congressional budget request;

• establish a formal process for approving and documenting the use of sales

proceeds and require that their use for other than justified replacement

property be weighed against critically analyzed worldwide requirements;

and

• improve the internal financial controls to better document and account for

the receipts and expenditures of sales proceeds and provide a sound basis

for reporting to the Congress on the receipt and use of sales proceeds.

Creating a separate account for sales proceeds should be the first step.

Agency Comments

and Our Evaluation

In commenting on a draft of this report, State agreed with the thrust of the

report’s findings, and said it had taken action to manage its real estate

holdings. However, State did not directly address our recommendations.

As we noted throughout the report, State’s actions to date are steps in the

right direction. Despite these improvements, State still does not have an

efficient system for identifying and disposing of excess real estate. State’s

lack of standard operating procedures to fully document the real estate

review and decision-making process and account for and report on the use

of funds are weaknesses that must be addressed. We believe that our

recommendations will help correct these deficiencies.

State indicated that it is in the process of selling some of the properties

listed in appendixes II through V; however, it continues to rationalize its

Page 7 GAO/NSIAD-96-36 Overseas Real Estate
B-266138 

retention of other properties without providing evidence that it considered

budget realities in doing so. We believe that the tenor of State’s comments

reenforce our position that an independent panel is needed to decide what

real estate should be sold based on consideration of all pertinent factors.

Finally, based on State’s comments, we requested further information on

properties in Hamilton and Bermuda. In our view, State’s backup data

provided additional grounds upon which to question retaining the

properties. The Department of State’s comments, along with our analysis,

are included in their entirety in appendix VI.

Matter for

Congressional

Consideration

Because the Department of State has not indicated support for our

recommendations intended to better identify and dispose of excess

property, and account for sales proceeds, the Congress may wish to direct

State to take action to implement them.

Scope and

Methodology

We conducted our work primarily at the headquarters of State’s FBO. We

interviewed State personnel and reviewed the files relating to real estate

for selected countries. We used reports by State’s Inspector General as a

base for selecting a number of the cases we reviewed. Complete

information on all the cases we reviewed was not available at State

headquarters, making it difficult to substantiate certain facts. Also, FBO

officials would not give us access to some files for locations where there

were ongoing considerations to sell property. We believe that these

limitations have not materially affected our conclusions and

recommendations, but they may have affected our ability to review other

problem cases.

We conducted our work from October 1994 to February 1996 in

accordance with generally accepted government auditing standards.

Page 8 GAO/NSIAD-96-36 Overseas Real Estate
B-266138 

We are sending copies of this report to other interested congressional

committees, the Secretary of State, and the Director of the Office of

Management and Budget. We also will make copies available to others on

request.

Please contact me at (202) 512-4128 if you or your staff have any questions

concerning this report. The major contributors to this report are listed in

appendix VII.

Benjamin F. Nelson, Director

International Relations and Trade Issues

Page 9 GAO/NSIAD-96-36 Overseas Real Estate
B-266138 

List of Requesters

The Honorable Judd Gregg

Chairman, Subcommittee on Commerce,

 Justice, State, the Judiciary, and Related Agencies

Committee on Appropriations

United States Senate

The Honorable Jesse A. Helms

Chairman, Committee on Foreign Relations

United States Senate

The Honorable Harold Rogers

Chairman, Subcommittee on Commerce, Justice,

 State, the Judiciary, and Related Agencies

Committee on Appropriations

House of Representatives

The Honorable Benjamin A. Gilman

Chairman, Committee on International

 Relations

House of Representatives

The Honorable William H. Zeliff, Jr.

Chairman, Subcommittee on National Security,

 International Affairs, and Criminal Justice

Committee on Government Reform and Oversight

House of Representatives

Page 10 GAO/NSIAD-96-36 Overseas Real Estate
Page 11 GAO/NSIAD-96-36 Overseas Real Estate
Contents

Letter 1

Appendix I 

Properties Identified

for Disposal Valued at

or More Than $1

Million as of October

1995

14

Appendix II 

Closed Posts

16

Appendix III 

Vacant Properties

18

Appendix IV 

Unique Properties

21

Appendix V 

Protracted Embassy

and FBO Discussions

23

Appendix VI 

Comments From the

Department of State

25

Appendix VII 

Major Contributors to

This Report

38

Abbreviations

FAM Foreign Affairs Manual

FBO Office of Foreign Buildings Operations

Page 12 GAO/NSIAD-96-36 Overseas Real Estate
Page 13 GAO/NSIAD-96-36 Overseas Real Estate
Appendix I 

Properties Identified for Disposal Valued at

or More Than $1 Million as of October 1995

Post Property

Aleppo Residence

Alexandria Office building

Amman Ambassador’s Residence

Athens Hamilton House

Athens Knox House

Athens Monroe House

Athens Sherman House

Bangkok Bang Pu site

Bangkok Sathorn Road

Beirut New office building site

Berlin Rias Trans site

Bogota Office building

Calcutta 9 Residences

Caracas Chancery

Dhaka GSO compound

Dusseldorf Office building

Dusseldorf Residence

Franfurt Residence

Hamburg Land

Kathmandu Land

Kinshasha Alhadeff Building

Lima Office building compound

London Southwick Place Residence

London Romney House

Manila Bahuio Amb. R&R Residence

Manila Vacant land

Nassau New office building site

New Delhi Residence

Osaka-Kobe Vacant lot

Paris D Building-RAMC

Santiago Office annex

Singapore Marine guard quarters

Singapore Office building

Stuttgart Office building

Tangiers Residence & office building

Tel Aviv Residence

(continued)

Page 14 GAO/NSIAD-96-36 Overseas Real Estate
Appendix I 

Properties Identified for Disposal Valued at

or More Than $1 Million as of October 1995

Post Property

Thessaloniki Office building

Tokoyo Treasury House Residence

Toronto Office building

Source: FBO.

Page 15 GAO/NSIAD-96-36 Overseas Real Estate
Appendix II 

Closed Posts

State holds and maintains some properties where posts have been closed.

Other properties are being marketed. Nineteen additional closures are

planned for 1996 as cost-saving measures. It does not seem prudent to

close posts as cost-saving measures and then continue to hold and

maintain post property at government expense.

• In Zanzibar, the consulate was closed in 1979, but rather than selling the

consul general residence, the embassy in Tanzania kept the property and

has used it predominantly for recreational purposes and occasionally for

official purposes. In 1987, the house was renovated at a cost of $108,000.

In 1991, the State Inspector General recommended that the embassy make

a recommendation to the State Department regarding the residence’s

disposition. According to the Inspector General, the embassy spent

$20,000 in 1990 for maintenance and personnel costs and used it 137 nights

for official and personal use. The Inspector General report indicated that

the island of Zanzibar has several adequate hotels that could be used by

travelers. It also questioned the likelihood that the United States would

reopen a post in Zanzibar and therefore need such a residence. The

embassy suggested in 1991 that the residence be retained for at least 

3 more years in anticipation of higher property values. Meanwhile, the

embassy undertook what it termed a “modest” property refurbishment to

enhance the residence’s value and its utility to U.S. personnel on official

travel in Zanzibar. According to Office of Foreign Buildings Operations

(FBO), $23,000 was allotted in 1992 to enhance the value of the property.

In early 1995, the Inspector General again visited Zanzibar. According to

Inspector General officials, maintenance and salaries relating to the

residence were $32,000 in 1994. The residence was used 122 nights for

recreation and 36 nights for representational purposes.

• In Alexandria, Egypt, the consulate general was closed in 1993; however,

State officials retained the consulate general residence, with an estimated

value of over $1 million, in hope that the post would be reopened. State

officials attempted to justify its retention on economic grounds, such as

using it as a residence for a U.S. Information Agency representative. The

Inspector General questioned such retention as an “apparent lack of

concern for the financial loss being incurred by the U.S. government.”

State officials then said that when the ambassador used the residence,

State would save $20,000 in lodging costs and that the spacious residence

is ideal for representational and trade promotion events.

• In Tangier, Morocco, in September 1988, State approved closing of the

consulate, but State retained the consulate compound, which contained a

Page 16 GAO/NSIAD-96-36 Overseas Real Estate
Appendix II 

Closed Posts

principal officer residence and an office building. The estimated value of

these facilities is greater than $2 million. Voice of America has been using

some of the facilities. In 1990, the embassy raised the issue of selling the

facilities, but actions to sell the property have evolved slowly. For

example, in July 1992, the embassy submitted its third request to FBO for

guidance. In January 1993, the embassy informed FBO that its repeated

requests over the preceding 9 months for funds to cover the cost of

appraisals had not been answered. It also requested $50,000 to provide

custodial services for these surplus properties. An FBO official told us that

both FBO and the embassy have now informally acknowledged the need to

sell the facilities, and listed them on the October 1994 potential sales list,

but they have not made a formal decision to do so.

Page 17 GAO/NSIAD-96-36 Overseas Real Estate
Appendix III 

Vacant Properties

In September 1993, FBO requested all posts to provide information on

vacant or underutilized land. In response, embassies reported a number of

vacant properties. Some of these properties were acquired for purposes

that never materialized and have been held for a number of years. They

could be candidates for possible sale. Because the information available to

us in Washington is sketchy, we cannot fully evaluate whether these

properties should be sold. However, if they are retained, the reasons for

their retention should be weighed against an analysis of their potential

disposal value.1

The following property was not being used:

• In Shanghai, China, State owns 2.6 acres of vacant land having an

estimated value of $4 million. State is trying to obtain China’s concurrence

on the use of this property.

• In Rabat, Morocco, State paid $435,000 for an 8-acre lot in 1988 for an

embassy and ambassador residence. The King of Morocco has used the lot

for an orange grove since its purchase. There are no current plans to build

on the property. The embassy also owns a residence, acquired in 1972, that

the security officer will no longer clear for occupancy. In February 1994,

the Inspector General reported that State should develop a plan to dispose

of its excess property in Morocco. In May 1994, the embassy reported that

it had six properties that were no longer needed and should be sold, not

including the 8-acre lot. In June 1995, however, the embassy indicated that

it was willing to sell only two of the properties.

• In Colombo, Sri Lanka, State owns property, which was bought in 1984 to

expand the chancery. A warehouse is now being constructed on the

property. State also owned a lot acquired in 1948 for residential use, which

was worth several hundred thousand dollars. This lot was sold recently to

pay for the warehouse.

• In Dakar, Senegal, State acquired a 3-acre site in 1989 for an ambassador

residence. There are no definitive plans to build the residence.

• In Islamabad, Pakistan, State owns a vacant lot next to the chancery,

which the embassy wants to keep for future residential use, but no plans

exist. In the meantime, it provides perimeter security.

1

Our May 1995 report identified undeveloped land valued up to $2.5 million in Nassau, the Bahamas,

that had been retained since 1975 without any intended use. State Department: Additional Actions

Needed to Improve Overseas Real Property Management (GAO/NSIAD-95-128, May 15, 1995).

Page 18 GAO/NSIAD-96-36 Overseas Real Estate
Appendix III 

Vacant Properties

The following property was being used for parking and other purposes:

• In Seoul, Korea, State owns 3.7 acres, acquired in 1990, that is worth

millions of dollars. It is currently being used for parking. State is trying to

work out a property deal with the Korean government, involving this and

other property.

• In Port of Spain, Trinidad, State owns 0.14 acres bought in 1987 for an

office annex. The office annex was never built, and the embassy has used

the lot for parking.

• In Praia, Cape Verde, State acquired a lot in 1981 to construct an

ambassador residence. The residence was not built, and the lot has been

used as a tennis court. State also purchased a residence in 1985 for Marine

guards, but the guard detachment was never assigned to the post. The

embassy was willing to sell the residence, but only if it could use the

proceeds. The lot is on FBO’s October 1994 sales list, but the residence is

not.

• In Rangoon, Burma, State owns a 2.4-acre lot, purchased in 1948 for an

unknown purpose. The embassy uses the lot for storing shipping

containers. According to an FBO official, FBO and the embassy are

considering the lot for a warehouse, but construction money has not been

authorized for the project.

The following property was not vacant, but was being leased to others or

not fully utilized:

• In Dusseldorf, Germany, State owns an office building that it is not using.

In fact, State is leasing it to an architectural firm. The embassy

acknowledged that it is willing to sell the building, but a formal decision to

sell has not been made. A State official said that the building will be sold

when the lease expires in 1997.

• In Kinshasa, Zaire, State owns a lot that was intended for residential units.

However, the embassy in Zaire has downsized and existing residential

units are being sold. The lot is currently being leased to a private company

for a satellite dish. There is no planned use for another 24.7 acres

originally intended for a transmitter site. State has been postponing the

sale of these properties pending the sale of the residential properties

under better market conditions.

Page 19 GAO/NSIAD-96-36 Overseas Real Estate
Appendix III 

Vacant Properties

The following property is held under long-term leases:2

• In Doha, Qatar, State holds two long-term lease properties as future

ambassador residence and embassy sites. There are no current plans to

build these facilities.

• In Manama, Bahrain, State has two long-term lease properties that are

used for parking and storage. The embassy wants to build a warehouse on

one lot and continue to use the other one for parking. However, the

warehouse has not qualified for funding during the screening process for

use of appropriated funds. Although the embassy indicates that these lots

were originally acquired for parking, they may not be optimally used if one

can be given up for a warehouse.

2

The embassies also reported two vacant properties that are not under State’s control. In Dakar,

Senegal, the U.S. Agency for International Development purchased a 35,000-square foot lot in 1985 for

$500,000 for an office building. There are no plans to construct the office building. When we inquired,

an Agency official said the property will be sold. In St. Andrews, Grenada, the U.S. Information Agency

owns 132 acres of unused property, purchased in 1987 for a relay station, which was later canceled.

Page 20 GAO/NSIAD-96-36 Overseas Real Estate
Appendix IV 

Unique Properties

State owns several high-value properties that are unique because of their

size, yet have a questionable use. These properties are retained for various

reasons, such as historical or political significance or a desire for better

market conditions.

• In Hamilton, Bermuda, State owns an expensive-to-maintain residence,

known as Chelston, for the consul general. In April 1994, the post

estimated that the property was worth over $12 million. An FBO survey in

February 1993 disclosed that the residence needed $240,000 in major

repairs. The main house is nearly 10,000 square feet and is situated on a

14-acre estate with a beach house. State’s Inspector General has

repeatedly recommended selling the property. In a September 1993 report,

it stated that “at a time of continual budget constraints, the Department

cannot afford the luxury of maintaining this ostentatious piece of

property.” Annual operational and maintenance costs for this one

residence are over $100,000. Post officials were instrumental in getting

President Bush to intervene against selling the property in 1991. According

to FBO officials, the Bermuda government opposes the sale of the property.

• In Buenos Aires, Argentina, State has maintained a 43,000-square foot

mansion as an ambassador residence since 1929. Estimates of its value

vary widely and range up to $20 million. Annual operating costs are about

$500,000. The issue of selling the property dates back more than 20 years.

As far back as 1969, we recommended disposing of the residence and

replacing it with a more appropriate house. The embassy has historically

opposed selling the residence, indicating that it stands as a symbol of the

U.S. presence in Argentina. Argentine officials have also opposed selling

the property. After a delegation of congressional and State officials visited

Argentina in December 1993, State announced that it would retain and

restore the residence.

In September 1995, the Inspector General reported that the ambassador

has enlisted the local American business community to donate funds for

gradually renovating the furnishings and interior. Further, State funding of

$5 million to $6 million will be required to repair the house and equipment,

and operating costs will require additional funding. According to the

Inspector General, “The residence will continue to represent a major

expense which the inspectors doubt can be justified indefinitely if budgets

continue to shrink.”

• In Prague, Czech Republic, State owns a 42,800-square foot ambassador

residence valued at several million dollars, which it has retained for over 

Page 21 GAO/NSIAD-96-36 Overseas Real Estate
Appendix IV 

Unique Properties

2 years after a decision was made to sell it, waiting for an undefined

market improvement.

• In Budapest, Hungary, State owns a house and property, with an estimated

value of over $1 million, which is used for occasional representational

functions, recreational purposes, and Marine security guard housing. This

property, known as the VAR, is stated to have historical significance to

Hungary. Some facilities were reportedly built in 1687. In 1990, the State

Inspector General reported that this facility was grossly underutilized.

State officials indicated that the most logical holder of the property would

be the Hungarian government because of the property’s historical

significance. They further indicated that a possible solution would be to

trade the property for other property that the embassy now leases.

Page 22 GAO/NSIAD-96-36 Overseas Real Estate
Appendix V 

Protracted Embassy and FBO Discussions

A major difficulty in disposing of overseas properties is the frequent

disagreements between the embassies and FBO over whether to sell

properties and how to use the proceeds. These disagreements have been

protracted and costly.

• In Brasilia, Brazil, the embassy and FBO had a standoff for over 2-1/2 years

over whether (1) to sell vacant lots, which were bought in the early 1960s,

and use the proceeds to renovate a 29-unit apartment building or (2) to sell

an apartment building and other property and use the proceeds to build

residences on the vacant lots. The embassy emphasized that the apartment

building is in an extremely poor location. Also, according to FBO officials,

the lots are located in the best parts of Brasilia, and there is a stigma

attached to living in apartments in Brasilia. FBO indicated that it was

cheaper to renovate the apartment building than to build private

residences on the vacant lots. Further, legal restrictions prohibit the

embassy from building apartments on the vacant land. During the time of

this dispute, the embassy spent $580,000 annually to lease housing while

the 29 apartments remained vacant.

• In Calcutta, India, an FBO study recommended in 1991 that the embassy sell

a 9-unit apartment building. However, the embassy wanted to sell a 6-unit

apartment building rather than the 9-unit building. The 9-unit building was

worth several million dollars more than the 6-unit building. According to

FBO information, both buildings were underutilized and could have been

sold except that the limited post staff did not want to handle the sale of

both units at the same time. In 1993, when FBO agreed to the sale of the

6-unit building, only two residents occupied the 9-unit building. The 9-unit

building was recently sold for $7.7 million. By selling the less valuable

property first FBO did not have the use of several million dollars for over 

2 years.

• In 1990, the Inspector General reported that State should review the need

for all State-owned property in Budapest and dispose of sites that were not

needed. FBO did an asset management study and recommended selling four

vacant properties. These unused properties are additional to the

underutilized VAR property discussed in appendix IV. FBO and the embassy

could not agree on which properties would be sold or how the prospective

sales proceeds would be used. As of May 1995, only one property was

being marketed. The embassy indicated that it was willing to sell two other

vacant properties but not until the one currently being marketed was sold.

An FBO official indicated that the embassy was unwilling to sell all the

properties before it had agreement from FBO that it could use the proceeds.

The fourth property is a site that was purchased in 1989 for $1.1 million for

construction of a new office building. There are no plans to construct the

Page 23 GAO/NSIAD-96-36 Overseas Real Estate
Appendix V 

Protracted Embassy and FBO Discussions

office building, but FBO and the embassy cannot agree upon the sale of the

site because the embassy wants to build residences on the site.

• In Kathmandu, Nepal, the embassy has retained excess property,

estimated to be worth several million dollars, for over 5 years after the

Inspector General recommended that the embassy develop a long-term

plan to consolidate embassy activities and sell excess property. It took

years for the embassy and FBO to reach agreement on consolidating

embassy activities and selling the excess property. A decision, in principle,

to sell the property was made in May 1995.

• In Stockholm, Sweden, over 6 years elapsed between the embassy’s

request to sell two apartments valued about $175,000 and the decision to

sell the property. During this period the embassy and FBO could not agree

on how the proceeds would be used.

Page 24 GAO/NSIAD-96-36 Overseas Real Estate
Appendix VI 

Comments From the Department of State

Note: GAO comments

supplementing those in the

report text appear at the

end of this appendix.

Page 25 GAO/NSIAD-96-36 Overseas Real Estate
Appendix VI 

Comments From the Department of State

See comment 1.

See comment 2.

Page 26 GAO/NSIAD-96-36 Overseas Real Estate
Appendix VI 

Comments From the Department of State

See comment 3.

Page 27 GAO/NSIAD-96-36 Overseas Real Estate
Appendix VI 

Comments From the Department of State

See comment 4.

See comment 5.

Page 28 GAO/NSIAD-96-36 Overseas Real Estate
Appendix VI 

Comments From the Department of State

Page 29 GAO/NSIAD-96-36 Overseas Real Estate
Appendix VI 

Comments From the Department of State

See comment 6.

See comment 7.

See comment 8.

Page 30 GAO/NSIAD-96-36 Overseas Real Estate
Appendix VI 

Comments From the Department of State

See comment 9.

See comment 10.

Page 31 GAO/NSIAD-96-36 Overseas Real Estate
Appendix VI 

Comments From the Department of State

Page 32 GAO/NSIAD-96-36 Overseas Real Estate
Appendix VI 

Comments From the Department of State

Page 33 GAO/NSIAD-96-36 Overseas Real Estate
Appendix VI 

Comments From the Department of State

See comment 11.

Page 34 GAO/NSIAD-96-36 Overseas Real Estate
Appendix VI 

Comments From the Department of State

Page 35 GAO/NSIAD-96-36 Overseas Real Estate
Appendix VI 

Comments From the Department of State

The following are GAO’s comments on the Department of State’s letter

dated January 26, 1996.

GAO Comments 1. We recognized State’s actions to improve the management of its real

estate function in previous reviews. This progress was the key reason for

the removal of property and maintenance management from both GAO’s

and the Office of Management and Budget’s high risk lists. At the same

time, we noted that State needed to take further action.1

2. State did not provide evidence during our review that it had established

a vigorous program to identify excess and underutilized properties

throughout the world for possible sale. As indicated in the report, State’s

actions consisted of unrelated and uncoordinated actions by the

embassies, FBO officials, State’s Inspector General, and ad hoc requests to

the embassies by FBO. Consequently, embassies have held unneeded

property for years without an intended purpose.

3. State does not routinely weigh proposed uses of sales proceeds at an

embassy against the needs of other embassies, such as it does for certain

uses of its appropriated funds. State also did not provide for our review

full information on its ranking of posts for reducing leasehold costs

because, as indicated in the report, State officials maintain that they need

the flexibility to use sales proceeds for other purposes.

4. State’s consensus mode of operation and the asserted effects on

diplomatic relations of selling real estate, in our view, are at the heart of

State’s difficulties in selling excess or underutilized real estate. That is why

we believe that an independent view should be brought to bear on these

difficult decisions to ensure that all pertinent factors are objectively

weighed. In the cases that we reviewed, it was not evident that

disagreements between the Department officials and the embassies were

timely referred to higher management levels and decisions expeditiously

made.

5. We noted the uncertainties in offsetting anticipated real estate proceeds

against State’s budget request. However, State essentially treats sales

proceeds as an off-budget fund that it uses for items additional to those in

the budget. For example, under the current procedures, State would use

1

State Department: Additional Actions Needed to Improve Overseas Real Property

Management(GAO/NSIAD-95-128, May 15, 1995).

Page 36 GAO/NSIAD-96-36 Overseas Real Estate
Appendix VI 

Comments From the Department of State

the $53 million in fiscal year 1995 sales proceeds for real estate matters

not justified in the budget.

6. We requested additional information from State on the Hamilton

property to substantiate its assertion that it was a gift from the Bermuda

government and that the Bermudian government was opposed to the sale.

The information provided indicated that the property was originally owned

by a U.S. citizen. Upon his death, the trustees passed ownership of the

property to the Internal Revenue Service in payment of back taxes and

State, through discussions with the Bermudian government, acquired the

property. State was unable to provide documentation from the Bermudian

government opposing the sale. State, however, provided a September 1994

embassy cable generated after a luncheon meeting with Bermuda’s

Premier where he expressed opposition to the sale. The cable goes on to

say that with the Premier’s approval, the property could be sold only to a

Bermudian, but would likely generate less than its current value. The fact

remains that sale of the property would allow State to reallocate millions

of dollars in sales proceeds, and eliminate the annual maintenance cost of

$100,000, as well as the costs of major repairs.

7. The decision to retain the property in Buenos Aires dates back to 1993.

Given the high value of the property, and today’s environment of

downsizing and fiscal restraint, it would be worth revisiting.

8. The files contained no information on what it cost to maintain the

property in Budapest. State should strongly consider giving this historical

property to the Hungarian government.

9. State commented that the property in Zanzibar could be sold were it not

for the political considerations. The independent panel we recommended

would weigh the political factors against the current cost of renovating

and maintaining this recreational property.

10. State did not provide documentation supporting the frequency of the

ambassador’s visits to Alexandria. According to the documentation

provided, the house, occupied by a representative of the U.S. Information

Agency, was used to host 14 mostly academic and cultural events in 1995.

The July 4th party was the only event listed as given by the ambassador.

The other events listed did not specifically state whether or not the

ambassador was in attendance.

11. We deleted the Stuttgart example based on State’s comments.

Page 37 GAO/NSIAD-96-36 Overseas Real Estate
Appendix VII 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

Jess Ford

Diana Glod

Roy Hutchens

Frederick Barrett

Edward Kennedy

Olivia Parker

(711115) Page 38 GAO/NSIAD-96-36 Overseas Real Estate
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