United States General Accounting Office

GAO Report to Congressional Committees

April 1995 OVERSEAS REAL

ESTATE

Inaction on Proposals

to Sell High-Value

Property in Tokyo

GAO/NSIAD-95-73

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-259697 

April 7, 1995

The Honorable Phil Gramm

Chairman

The Honorable Ernest F. Hollings

Ranking Minority Member

Subcommittee on Commerce, Justice,

 State, and Judiciary

Committee on Appropriations

United States Senate

The Honorable Harold Rogers

Chairman

The Honorable Alan B. Mollohan

Ranking Minority Member

Subcommittee on Commerce, Justice,

 State, and Judiciary

Committee on Appropriations

House of Representatives

The Honorable Karen L. Thurman

Ranking Minority Member

Subcommittee on National Security, International

 Affairs, and Criminal Justice

Committee on Government Reform and Oversight

House of Representatives

As part of our focus on high risk areas within the federal government, we

have been reviewing the Department of State’s management of

government-owned real property overseas. This report contains our

observations on (1) prior proposals to dispose of some U.S. properties in

Tokyo, Japan, (2) the reasons the proposals were not implemented, and

(3) actions that should be taken at the current time. We are providing this

report because of the potential budget implications that selling, leasing, or

better utilizing Tokyo properties could have. We plan to report later on

State’s efforts to identify real estate at other locations that does not meet

U.S. government needs and to improve management of its overseas real

property programs.

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Background In Tokyo, State owns residences for the Ambassador and the Deputy Chief

of Mission; a 12-acre property called the Mitsui compound, which has

townhouses and apartments for staff housing; and the main chancery

building for most of the embassy’s offices. About 3 acres of the Mitsui

compound are undeveloped, except for a tennis court, playground, and a

water receiving and distribution facility. Treasury owns and manages a

residence, known as the Treasury House, for the financial attache (the top

ranking representative from the Department of the Treasury).

Real estate values in Tokyo experienced dramatic increases during the

1980s. A State consultant reported that residential land appreciated by an

average of 30.7 percent each year; the embassy’s information showed a

surge of 57 percent in 1987. In a March 1991 report, a contractor appraised

the Mitsui compound at $3.3 billion, the Deputy Chief of Mission residence

at $92 million, and the Treasury House at $15.1 million. These appraised

values were based primarily on the value of the land itself.

According to embassy information, property values peaked about 1990 and

have since declined. Residential land prices have declined about

30 percent since 1990, according to embassy information based on

Japanese government reports. Some embassy officials surmised that the

decline may be greater than that.

State’s Office of Foreign Buildings Operations (FBO) is responsible for

managing State’s Tokyo properties as part of its worldwide management

responsibilities. State owns, at more than 200 locations around the world,

about 3,000 properties used for offices, housing, and other purposes,

which it values at about $12 billion. FBO can sell, lease, and exchange

property that is not needed for government purposes and use the proceeds

for such purposes as acquiring other facilities. FBO, in conjunction with the

embassies, is responsible for determining embassies’ needs for facilities,

comparing those needs with what is available, and obtaining or disposing

of property and facilities.

Results in Brief The U.S. government has been slow to take advantage of opportunities to

sell or lease some of its high value real estate in Tokyo. Studies in 1988 and

1991 identified several options for selling or leasing some property and

better using the remainder. These options included (1) selling the Treasury

House; (2) selling the Deputy Chief of Mission residence and providing

housing on the Mitsui compound; and (3) selling or leasing the 3-acre

undeveloped portion of the Mitsui compound valued at $795 million,

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constructing additional housing on the remainder of the compound, which

would reduce government lease costs for employees not housed on the

compound, and improving other facilities.

The Treasury Department does not have explicit authority to retain

proceeds from real estate sales. Thus, if Treasury sells the Treasury House,

the proceeds must be returned to general receipts of the Treasury and

would not be available for obligation by Treasury without new authority

from the Congress. Treasury, therefore, has been negotiating to turn the

property over to State, which has authority to use the proceeds from the

sale of property, in return for concessions from State. However,

interagency squabbles on such concessions have caused delays. In the

meantime, the value of the land has decreased, and the residence has been

allowed to deteriorate to the point that it cannot be occupied. As of

August 1994, it was estimated that this unused property could be sold for

$5 million.

Because the embassy strongly opposed the sale of the Deputy Chief of

Mission residence, State rejected two FBO proposals to sell the property,

even though the property is less than half an acre and was valued at about

$92 million.

State has no plans to sell or lease portions of the Mitsui compound for

several reasons. First, State is concerned that, despite legislation

permitting it to retain the sales proceeds, it would not be allowed to retain

proceeds of such a large amount—roughly twice the entire annual

appropriation for overseas real property worldwide. Second, the embassy

opposed the sale, and State was unwilling to proceed without embassy

agreement. Third, the decline in real estate values since 1991 has

decreased the potential sales proceeds.

Parochial interests governed past decisions by the embassy, State, and

Treasury rather than the overall best interests of the U.S. government.

Therefore, the U.S. government missed its opportunity to sell while

property values were high. The value of U.S. properties is still significant,

and opportunities remain for sale, lease, or consolidation of facilities on

the Mitsui compound. Millions of dollars in potential sales proceeds and in

lease costs hinge upon agency actions.

Although State did two major studies of real estate in Tokyo, it has not

prepared a comprehensive plan for managing the Tokyo property in a

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B-259697 

cost-effective manner. The need for such a comprehensive plan is set forth

in State’s own policy directive and previous congressional and GAO reports.

Studies

Recommended

Disposal Actions

FBO contracted for two major studies of government-owned property in

Tokyo to determine its highest and best use.1

 The studies completed in

January 1988 and March 1991, respectively, covered the Treasury House,

the Deputy Chief of Mission residence, and the Mitsui compound.2

• The purpose of the January 1988 study was to assess the value of, and

develop an appropriate strategy for, the properties. The study considered

the market value of land and replacement costs for buildings and

suggested the highest and best use under different zoning or

redevelopment alternatives.

• The March 1991 study was to assess the value and propose an appropriate

strategy for the highest and best use of U.S. government property in Tokyo

over the next 20 years, considering appraisals, market data, and applicable

Japanese laws and regulations.

Both reports presented several options for meeting the Tokyo embassy’s

current and future needs and for generating proceeds of several hundred

million dollars. In addition to selling the Treasury House, the Deputy Chief

of Mission residence, and the undeveloped portion of the Mitsui

compound, the studies suggested several other options.

• Sell the portion of the Mitsui compound containing 14 townhouses, Marine

guard quarters, basketball court, and domestic employee quarters. A cliff

or sharp break in the contour of the ground forms a natural separation of

this area from the rest of the compound. (The land occupied by the Marine

guard quarters, basketball court, and domestic employee quarters was

valued at $145 million. It costs about $55,000 a year to maintain the

domestic employee quarters.)

• Undertake a joint venture with private enterprise to develop portions of

the Mitsui compound, such as the governments of Canada and Australia

have done with their compounds. The Canadians retained title to their

1

The 1991 study report defined highest and best use as that use that will, over a period of time,

preserve the utility of the property and produce a net return that, when capitalized, will produce the

highest value.

2

The chancery, which State built on land leased in perpetuity, and the Ambassador residence were not

included in the studies. The Ambassador residence was constructed in the 1930s and has historical

significance to the United States as well as to Japan. It is located on the original site that was granted

to the U.S. Legation by Japan in the late 1880s for the U.S. official mission. The residence is undergoing

a major renovation, which is expected to be completed by May 1995, at a cost of about $8 million.

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B-259697 

existing chancery site and developed it with help from a Japanese firm. In

exchange for a no-income lease of surplus space on the lower floors of a

new building, the Canadians received a new chancery on the upper floors,

a temporary chancery, and a staff housing complex at no capital cost to

the Canadian government. After 30 years, or if the developer recoups his

costs before then, the surplus space reverts to the Canadians. The

Australians sold a portion of the site they owned and with the proceeds

built, on the remaining portion, a new chancery, a new Ambassador

residence, and a staff housing complex. They also had a significant amount

of proceeds left over for other purposes.

• Construct additional housing on the Mitsui compound for other agencies’

employees, thereby saving the U.S. government the annual lease costs,

which exceed $4 million a year. (Embassy officials oppose this option

because they want to control the number of U.S. personnel in Tokyo and

they believe that providing free housing on the Mitsui compound for all

other agencies’ employees would create incentives for agencies to

increase their staff levels.)

The following sections discuss the Treasury House, the Deputy Chief of

Mission residence, and the Mitsui compound.

Treasury House State and Treasury have agreed for some time that the Treasury House

should be sold. However, they have been unable to agree on how to

implement the sale. Failure to expeditiously implement the sale may have

cost the U.S. government as much as $18 million in lost revenue and

additional appropriations.

In 1964, the Treasury Department bought the Treasury House for $150,000.

It is a single family, 3-bedroom house on a one-tenth-acre lot. The house

needs extensive renovation, which was estimated to cost about $150,000 in

1992, and has not been occupied since May 1994 because of its

deteriorated condition. The January 1988 study valued the property at

$10.3 million; the March 1991 study at $15.1 million. By August 1994, the

appraised value had dropped to $5 million.

Since the 1991 Tokyo property study, State and Treasury have been

considering transferring control of the property to State, which wanted to

use the sales proceeds to renovate the Ambassador residence. After much

back and forth between State and Treasury, the two agencies made the

following formal proposals regarding the transfer of the property to State

and the benefits State would provide Treasury in exchange:

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B-259697 

• In January 1993, State proposed that Treasury transfer custody of the

property to State in return for housing on the Mitsui compound for the

financial attache and three staff. However, if any of the three staff could

not be provided housing, Treasury would have to lease alternative

housing. (Until this time, the financial attache had used the Treasury

House. Other Treasury staff as well as staff from other agencies had

shared available housing on the Mitsui compound after the needs of the

foreign affairs agencies had been met. As of September 1994, one Treasury

employee was housed on Mitsui, and two others were in leased housing,

which cost about $93,000 and $84,000 annually.)

• In April 1993, Treasury made a counterproposal that would have provided

a return on investment to Treasury of about $700,000 annually for 20 years,

including (1) the value of housing for four employees on the Mitsui

compound ($325,000); (2) the salaries and benefits of two foreign service

nationals ($250,000); and foreign affairs administrative support costs

($100,000). Additionally, State would guarantee housing on Mitsui for the

Treasury employees. (Housing Treasury staff on Mitsui would save

Treasury money, but other agencies would have to lease more facilities off

the compound.)

• In June 1993, State rejected the counterproposal and said State “cannot

guarantee housing units nor will it compensate Treasury for administrative

expenses and foreign service nationals’ salaries since these benefits bear

no relation to housing allocation.”

These positions may seem to be reasonable from the perspective of the

individual agencies, but they have not been in the best interests of the U.S.

government and the American taxpayer. The appraised value of the

property decreased by $10 million from 1991 to 1994, and FBO used about

$8 million in appropriated funds in lieu of the potential sales proceeds to

renovate the Ambassador residence.

In July and August 1994, just before the results of the last appraisal were

available, Treasury officials told us the property should be sold, and FBO

officials told us that the sale of the residence should be imminent.

However, the appraisal of $5 million in August 1994, compared with the

previous appraisal of $15 million, apparently has further delayed action on

the property. In October 1994, an FBO official said that FBO was pondering a

further course of action. In December 1994, a Treasury official said there

still was no agreement with State.

The Treasury property is not owned by State, it was not paid for with State

funds, and it does not currently fall under the purview of State’s legal

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B-259697 

authority to sell and use the proceeds for acquiring other facilities.

Treasury, which paid for the property, no longer wants it; it is neither

occupying nor maintaining the property in a usable condition; and it does

not have explicit legal authority to retain the proceeds from the sale of the

property. Our review indicated that the proper course of action is for

Treasury to promptly dispose of the unneeded property and return the

funds generated from the sale to general receipts of the U.S. treasury.

Treasury could transfer control of the property to State, and State could

sell it and use the proceeds, but because of the current fiscal conditions,

we believe the proceeds should go to general receipts.

Deputy Chief of Mission

Residence

The 1991 study appraised the property which contains the Deputy Chief of

Mission residence at $92 million and estimated that it would cost

$3.8 million to build a replacement residence on the Mitsui compound.

State bought the residence in 1950 for $89,000. It was constructed in the

1930s and is not considered to be architecturally significant or an historic

building. It contains 9,100 square feet and is on a .45-acre lot. The

residence was renovated in 1990 at a cost of $1.9 million.

Figure 1: The Deputy Chief of Mission

Residence

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B-259697 

State management in Washington, D.C., rejected a proposal after the 1988

study to sell the residence because of embassy opposition. The 1988 study

valued the property at about $70 million and estimated that the residence

could be replaced for $2.4 million. After this study, FBO proposed selling

the residence and using the proceeds for building a replacement residence,

renovating the Ambassador residence, and funding critical shortages in

FBO’s capital construction program. State documents show that the

embassy and State’s East Asian and Pacific Affairs Bureau opposed the

proposal because “it would degrade the representational posture of the

Deputy Chief of Mission.” Consequently, the Secretary of State

disapproved the proposal.

Consideration of selling the residence was again dropped after the 1991

study because of embassy opposition. In a March 1991 meeting between

FBO and embassy officials regarding the 1991 study options, including the

Mitsui compound, the embassy maintained that the residence was too

valuable an asset to embassy operations to dispose of, an acceptable

alternative residence was not available, and it was needed to house the

Ambassador during renovation of the Ambassador residence. (Renovation

is expected to be completed by May 1995.) The embassy’s objections did

not address the study options to provide a residence for the Deputy Chief

of Mission on the Mitsui compound and retain use of the current residence

for 5 years for the Ambassador. Immediately after this meeting, FBO

relented on proposals to sell the residence, but continued to push options

relating to the Mitsui compound.

During our September 1994 visit to the embassy, the Ambassador and the

Deputy Chief opposed selling the residence. Reasons given included its

use for representational purposes and a matter of U.S. presence, image,

and symbolism with the Japanese. There are currently no plans to sell the

property even though the sales proceeds should be substantial and the

operating costs are high. (For 1994, the estimated operating costs are over

$255,000, compared with an average operating cost of $27,300 for the

housing units on the Mitsui compound.) If the property were sold,

representational functions could be carried out at a residence either on the

Mitsui compound or elsewhere.

Mitsui Compound The 1988 study appraised the Mitsui compound at $2.1 billion. According

to the study, the compound is one of the largest and most valuable parcels

of residential land in single ownership in Central Tokyo. The 1991 study

appraised it at $3.3 billion. Both studies pointed out that the compound

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B-259697 

was only about 40 percent developed. Figure 2 shows the compound and

surrounding area, and figure 3 identifies various features of the compound.

Figure 2: The Mitsui Compound and Surrounding Area

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B-259697 

Figure 3: Features of the Mitsui Compound

Domestic employee 


quarters

Harris Tower

Marine extention Marine quarters

Playground

Water


station

Guards

North


entrance

Temple Townhouses

(Garage under)

West


entrance

Field

Tennis 


courts

Mitsui


Townhouses

Perry


Tower Asphalt drive

Swimming 
 pool

Daly 


Hall

Multi-purpose Snack 


Bar

Loading 


Dock

Grew Tower

Perimeter fence

Guards

Terrace

N

Basketball court

State bought the 12-acre Mitsui site in 1950 for about $122,000. The

property was developed in 1952; in the early 1980s, it was comprehensively

redeveloped into a housing compound, as well as support and recreation

facilities. Two groups of townhouses and 3 high-rise apartment buildings

on the compound contain 173 housing units. Also, there are two low-rise

buildings for Marine-guard housing and a similar one for

domestic-employee housing on one boundary.

All State and other foreign affairs agencies’ employees, except for the

Ambassador and the Deputy Chief of Mission, are provided housing on the

Mitsui compound, and, when available, housing is provided to employees

of other agencies. As of June 1994, other agencies were spending about

$4.5 million annually to lease 58 housing units off the compound. If the

number of authorized personnel in Tokyo remains static, as perceived by

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B-259697 

the Deputy Chief of Mission, then the need for housing off the compound

will continue.

Historically, the embassy has opposed the sale or private development of

any part of the Mitsui compound because of quality-of-life concerns and a

desire to retain the land for possible future use. In its February 1990

comments on the then-proposed second study, the embassy expressed

concern that the concept of highest and best use would predetermine the

outcome of the study in favor of economic benefits without adequately

considering the reasons for being in Tokyo (i.e., to represent the United

States to the government of Japan). The embassy believed it would be, in

the long term, a serious mistake to sell any property currently owned in

Japan. In a March 1991 meeting with FBO, the embassy remained opposed

to leasing or selling any portion of the Mitsui compound in return for

redevelopment on the remaining portion. In April 1991, the embassy

indicated that possible future requirements include a more centrally

located trade center, a new agricultural trade office, and an American

center to house a portion of the U.S. Information Agency operations and

perhaps other cultural establishments.3

In June 1991, FBO prepared a conceptual proposal to sell the undeveloped

portion of the compound on an installment basis for an estimated

$750 million. The proposal (1) indicated that the proceeds were to be used

first to redevelop the remaining portion of the compound, such as

replacing some of the existing housing units, building 60 additional units,

and increasing and modernizing the recreation and support facilities for

embassy employees and their families; (2) estimated that $60 million

annually would be available to fund other facility requirements in the FBO’s

5-year capital facility program;4

 (3) provided for possible future

requirements; and (4) stated that the embassy concerns were

accommodated.

Also in June 1991, the Deputy Secretary approved moving forward with

planning on the proposal. However, in late October or early

November 1991, State abruptly put a “hold” on disposing of a portion of

Mitsui under the proposal. State officials told us that the hold was done

orally. They told us that there were various reasons for the hold, such as

3

FBO and embassy officials have also mentioned the possibility of moving the Foreign Service

Institute’s Japanese language training school, located in Yokohama, Japan, to the Mitsui compound

since the school spends $700,000 annually in facility lease costs.

4

Additional unfunded new office facility requirements at that time included new chanceries in Seoul,

Managua, Bucharest, and Sofia and housing in China, Moscow, Eastern European posts, and

elsewhere.

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B-259697 

declining property values and other work priorities, but could provide no

documentation stating the precise reasons. State’s files, however, show

that one reason for the hold was State’s fear that it would not be allowed

to retain proceeds of this magnitude, despite its authority to use such

proceeds. According to FBO’s Deputy Assistant Secretary, Office of

Management and Budget and congressional concurrence with the

proposed use of the proceeds was never sought.

Notwithstanding the hold, discussions among FBO and other State

personnel of a potential sale continued into 1992. In June 1992, the Deputy

Secretary and the Under Secretary for Management visited Tokyo. After

this visit, the Under Secretary shifted focus from selling a portion of the

compound to doing an entrepreneurial (lease/partnership) development of

some of the perimeter lands. No action was ever taken. FBO personnel

indicated that other work and the declining Tokyo real estate market were

factors. In 1993, FBO personnel raised the issue of the Tokyo property, but

dropped the issue because of the embassy’s opposition and the concerns

regarding use of sales proceeds.

According to State and embassy officials, there are currently no plans to

develop, sell, or lease portions of the Mitsui compound.

Comprehensive

Facilities Management

Plan Not Prepared

In May 1991, FBO’s Deputy Assistant Secretary informed us that the Tokyo

studies were a key element of FBO’s strategic planning process for overseas

real property acquisition and disposal. However, FBO never prepared longor short-term property management plans identifying property for disposal

or acquisition, such as recommended in previous GAO and congressional

reports and FBO’s stated policy.

In April 1989, we recommended that the Secretary of State require the

development of long- and short-term plans for systematically buying and

disposing of overseas properties. Because real estate management is long

term and foreign service assignments are transitory, a real estate

management plan would aid in management continuity. State generally

had not prepared long- and short-term country plans to determine its real

estate needs and how to satisfy them. Rather, State used a technique called

“rationalization,” which involved selling high-dollar-value prime properties

and purchasing cheaper substitute properties on an ad hoc basis.5

5

State Department: Management of Overseas Real Property Needs Improvement (GAO/NSIAD-89-116,

Apr. 13, 1989).

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In April 1990, FBO established a policy requiring each post to have a master

facilities plan that matches long- and short-term requirements with current

assets to develop cost-effective alternatives for managing real estate

programs. Although FBO said that the Tokyo asset studies were part of its

strategic planning process, FBO did not link the studies to a complete

review of post assets and a requirements analysis, as called for in its 1990

policy on master planning.6

In its November 1993 report, the House Committee on Government

Operations also recommended that FBO establish long- and short-term

plans for acquiring and disposing of government-owned property.7

 We

have repeatedly reported on the overall need for such plans for a number

of years, and in our view, State’s management of its most valuable real

estate in the world would have benefited from a plan.

Recommendations We recommend that the Secretary of the Treasury sell the Treasury House

and deposit the proceeds in the general funds of the Treasury.

We recommend that the Secretary of State sell the Deputy Chief of Mission

property and provide the Deputy Chief of Mission alternative housing.

We recommend that the Secretary of State ensure that a plan is prepared

and implemented for the Mitsui compound identifying Tokyo embassy’s

current and future facilities needs and how the compound can be used to

meet those needs. The plan should consider

• providing housing for the Deputy Chief of Mission;

• providing housing for other agencies’ employees, which would save the

U.S. government the annual lease costs that are currently $4 million to

$5 million;

• consolidating on the compound, to the extent feasible, other government

facilities in Japan, such as the language training facility in Yokohama,

which would result in savings to the U.S. government; and

• exploring opportunities to sell or lease portions of the compound and to

use the proceeds for other needs.

6

State Department Efforts to Improve Management of Overseas Real Property (GAO/T-NSIAD-91-40,

June 20, 1991).

7

State Department Mismanagement of Overseas Embassies: Corrective Action Long Overdue, Sixth

Report by the Committee on Government Operations (H. Rept. 103-409, Nov. 22, 1993).

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Agency Comments In commenting on a draft of this report, State indicated that it felt the

timing is now wrong to sell the Deputy Chief of Mission property, but the

merits of such a sale should be pursued. It also indicated that it will work

with the embassy to pursue a study of the embassy’s long-term facility

needs and how best to utilize the real property assets at the post to meet

those needs. Treasury agreed that the Treasury House should be sold and

indicated its intention to turn the property over to State if State will agree

to provide housing for Treasury employees; otherwise, it will sell the

property directly. State and Treasury’s comments are included in their

entirety in appendixes I and II, respectively, along with our analyses.

Scope and

Methodology

We conducted our review from March 1994 to January 1995 in accordance

with generally accepted government auditing standards. We interviewed

personnel from the Departments of State and the Treasury and reviewed

available files. We visited the government-owned facilities in Tokyo and

interviewed U.S. embassy personnel. We also visited the Canadian and

Australian embassies in Tokyo and discussed their management actions

during the period of rising real estate values.

We are sending copies of this report to other interested congressional

committees, the Secretary of State, the Secretary of the Treasury, and the

Director of the Office of Management and Budget. We also will make

copies available to others on request.

Please contact me on (202) 512-4128 if you or your staffs have any

questions concerning this report. Major contributors to this report are

John Brummet, Roy F. Hutchens, and Frederick J. Barrett.

Joseph E. Kelley

Director-in-Charge

International Affairs Issues

Page 14 GAO/NSIAD-95-73 Overseas Real Estate
Page 15 GAO/NSIAD-95-73 Overseas Real Estate
Contents

Letter 1

Appendix I 

Comments From the

Department of State

18

Appendix II 

Comments From the

Department of the

Treasury

27

Figures Figure 1: The Deputy Chief of Mission Residence 7

Figure 2: The Mitsui Compound and Surrounding Area 9

Figure 3: Features of the Mitsui Compound 10

Abbreviations

FBO Foreign Buildings Operations

Page 16 GAO/NSIAD-95-73 Overseas Real Estate
Page 17 GAO/NSIAD-95-73 Overseas Real Estate
Appendix I 

Comments From the Department of State

Note: GAO comments

supplementing those in the

report text appear at the

end of this appendix.

Page 18 GAO/NSIAD-95-73 Overseas Real Estate
Appendix I 

Comments From the Department of State

See comment 1.

See comment 2.

See comment 3.

Page 19 GAO/NSIAD-95-73 Overseas Real Estate
Appendix I 

Comments From the Department of State

See comment 4.

See comment 2.

See comment 5.

Page 20 GAO/NSIAD-95-73 Overseas Real Estate
Appendix I 

Comments From the Department of State

See comment 6.

Page 21 GAO/NSIAD-95-73 Overseas Real Estate
Appendix I 

Comments From the Department of State

See comment 7.

See comment 8.

See comment 9.

See comment 10.

Page 22 GAO/NSIAD-95-73 Overseas Real Estate
Appendix I 

Comments From the Department of State

See comment 11.

See comment 12.

Page 23 GAO/NSIAD-95-73 Overseas Real Estate
Appendix I 

Comments From the Department of State

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

dated February 8, 1995.

GAO Comment 1. State-funded studies recommended several viable options to capitalize

on the properties increased value, but State chose to ignore the advice of

the experts it hired. This has cost the taxpayers a great deal of

money—enough to cover about the Foreign Buildings Operations’ (FBO)

entire budget request for the next 2 years.

2. The report recognizes Treasury’s control of the Treasury House and

recommends that Treasury sell the property and return the proceeds to

general receipts. The report lays out State’s and Treasury’s inability to

agree on disposal of the property. Both State and Treasury may feel that

their independent positions were reasonable, but the failure to reconcile

these positions led to a result that was not in the best interest of the U.S.

government, and it may have cost the government and the taxpayer as

much as $18 million.

State indicates that it has no authority to take independent action

regarding the Treasury House, but it is willing to take control of the

property, and depending on market conditions, sell it. Under this

procedure, the proceeds would be available to State for its use. Because of

fiscal constraints, our position is that Treasury should sell the property

and return the proceeds to general receipts. Also, we question State’s

ability to predict future market conditions. The U.S. government should

not continue to hold properties that are unneeded.

3. The report pieces together the available information from State’s files

and shows the decisions made and the basis provided for those decisions.

To the extent that factors were cited as a consideration in the

decision-making process, they are included in the report. The report

presents the overwhelming weight given to the embassy position in the

decision-making process over the results of the State-funded studies.

State’s files show that one reason for not developing the Mitsui compound

was its concern that it would lose the use of the proceeds.

We have previously recommended that State develop property

management plans, and State issued a policy directive with this

requirement. However, State never developed such a plan for Tokyo, its

most valuable property. If it had developed such a plan, then relevant

Page 24 GAO/NSIAD-95-73 Overseas Real Estate
Appendix I 

Comments From the Department of State

factors and the weight assigned to them regarding the property would be a

matter of record.

4. The report title reflects the report’s message. We made no changes.

5. Personnel authorizations at the embassy are approved through an

interagency process based on need. If additional personnel are assigned to

the Tokyo embassy, then costs likely would increase. Lease costs of

$4 million to $5 million are being incurred because housing is not available

on the Mitsui compound. Treasury’s comments on a draft of this report

(see app. II) show that it is incurring over $1 million annually for lease

costs for employees of the Office of International Affairs, Customs Service,

and the Internal Revenue Service.

5. State’s comment that budget constraints are not a reason to sell the

Deputy Chief of Mission residence is troubling when the entire

government is looking for ways to cut costs and find revenues. State’s

view that the residence plays a significant role in bilateral relations with

Japan raises further questions as to why State incurred significant costs in

1988 and again in 1991 to study, among other things, the sale or retention

of this property. One option of the 1991 study was to provide the Deputy

Chief of Mission a house costing about $4 million on other State-owned

property and to sell the property containing the Deputy Chief of Mission

residence, which was then valued at $92 million. As pointed out in the

report, the embassy opposed the sale because it believed the

representational posture of the Deputy Chief of Mission would be

degraded. The report further stated that, if the property were sold,

representational functions could be carried out at a residence on the

Mitsui compound or elsewhere. The present Deputy Chief of Mission

confirmed this during our visit. State said it gave great weight to the

embassy’s firm position to not sell the residence. Our report acknowledges

this, but questions whether the embassy’s position represents the best

interests for the U.S. government.

7. State has no way of knowing whether Tokyo real estate is currently at

the bottom of a “boom/bust cycle” or if the value of real estate will go up.

The State proposal basically is to sell the Deputy Chief of Mission

residence if prices go up. Again, we question State’s ability to assess future

real estate market conditions.

8. Embassy personnel provided information showing an estimated 1994

operating cost of $255,000 for this 9,000-square-foot residence, whereas

Page 25 GAO/NSIAD-95-73 Overseas Real Estate
Appendix I 

Comments From the Department of State

operating costs for Mitsui residences were $27,300. Representational

expenses of the Deputy Chief of Mission and other embassy personnel are

paid separately and not included in the above amounts.

9. The report cites what happened as shown by State’s files. The Deputy

Secretary approved plans to proceed with developing the Mitsui

compound. According to State Department documents, one reason for

State’s “hold” on development efforts was its concern that it would lose

the multi-million dollar proceeds involved.

It is not our intent to bias future studies of the use of the Mitsui

compound, but our recommendations should be considered in such a

study. In today’s environment, we believe the dollar values of the

properties should play a significant role in the outcome of such study.

10. We have modified the report to reflect this comment.

11. The embassy’s comment reinforces our concern for State’s basis for

determining future real estate market conditions. Embassy officials told us

that, in 1991, the prevailing view was that real estate values could only

continue to go up, but time has shown that view was wrong. As the report

points out and State’s comments indicate, property values have declined;

however, they are still significant.

Regarding the embassy’s recollection that knowledgeable observers

believed that FBO would be “crazy” to sell real estate in Tokyo, FBO did two

studies that showed the economic feasibility of doing so, and the Deputy

Secretary approved of preparing plans for such a sale.

12. These comments suggest that the embassy concurs with our third

recommendation.

Page 26 GAO/NSIAD-95-73 Overseas Real Estate
Appendix II 

Comments From the Department of the

Treasury

Note: GAO comments

supplementing those in the

report text appear at the

end of this appendix.

Page 27 GAO/NSIAD-95-73 Overseas Real Estate
Appendix II 

Comments From the Department of the

Treasury

See comment 1.

Page 28 GAO/NSIAD-95-73 Overseas Real Estate
Appendix II 

Comments From the Department of the

Treasury

See comment 1.

Page 29 GAO/NSIAD-95-73 Overseas Real Estate
Appendix II 

Comments From the Department of the

Treasury

Page 30 GAO/NSIAD-95-73 Overseas Real Estate
Appendix II 

Comments From the Department of the

Treasury

The following is GAO’s comment on the Department of Treasury’s letter

dated February 7, 1995.

GAO Comment 1. As indicated in the report, we believe that Treasury should sell the

Treasury House and deposit the proceeds into general receipts. If

necessary, it should use the embassy’s administrative capacity to do this.

(711068) Page 31 GAO/NSIAD-95-73 Overseas Real Estate
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