Federal Real Property: GSA Should Better Target Its Use of Swap-Construct Exchanges
Published: 2014-07-24T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: To help address challenges in federal real-property management, including the growing need to replace and modernize federal buildings, GSA has proposed expanding its use of swap-construct exchanges. GSA has proposed this approach for some potentially large projects, including replacing the FBI's headquarters.
GAO was asked to review issues related to these exchanges. This report addresses: (1) GSA's experience with completed swap-construct exchanges; (2) the status of GSA's proposed swap-construct exchanges; and (3) the potential benefits of these exchanges and factors that can influence their future use. GAO reviewed documents, including GSA's solicitations for swap-construct exchanges, appraisals of completed exchanges, and OMB and GAO guidance. GAO conducted site visits to the completed swap-construct sites and three proposed swap-construct sites, selected based on location, number of responses to GSA's solicitation, and stage in the swap-construct process, and interviewed GSA officials and nonfederal participants in the exchanges.
section_title: What GAO Found
paragraphs: Since 2000, the General Services Administration (GSA) has completed two “swap-construct” exchanges—transactions in which the agency exchanges title to federal property for constructed assets or construction services, such as renovation work—in response to private sector interest in specific federal properties. In both completed exchanges, GSA used the value of federal properties it determined were underutilized to acquire new parking garages. The recipients of the federal properties told us that the exchanges took longer than expected (about 3 years for one of the exchanges and 5 years for the other). In response, GSA noted its lack of experience with swap-construct exchanges at the time.
Since 2012, GSA has proposed six swap-construct exchanges. After reviewing responses to its solicitations, GSA is actively pursuing three, including a potential exchange of the existing Federal Bureau of Investigation's (FBI) headquarters for construction of a new FBI headquarters building. Respondents to the three solicitations that GSA is not actively pursuing noted concerns, including the amount of investment needed in the federal properties and the lack of detail regarding GSA's construction needs in an exchange. Swap-construct can result in an exchange of equally valued assets or services or can result in the government or a property recipient paying for a difference in value.
The swap-construct approach can help GSA address the challenges of disposing of unneeded property and modernizing or replacing federal buildings, but various factors could affect future use of the approach. For example, swap-construct can require developers to spend large sums on GSA's construction needs before receiving title to the federal property used in the exchanges. GSA's solicitations have not always specified these construction needs. Consequently, developers may be unable to provide meaningful input, and GSA could miss swap-construct opportunities. Further, the viability of swap-construct exchanges may be affected by specific market factors, such as the availability of alternative properties. However, GSA lacks criteria to help determine if the agency should solicit interest in a swap-construct exchange. As a result, GSA could miss opportunities to use swap-construct or select properties and construction projects better suited to traditional disposal and funding processes. Office of Management and Budget (OMB) and GAO guidance emphasize the importance of criteria in making capital-planning decisions and providing clarity on construction needs.
section_title: What GAO Recommends
paragraphs: GAO recommends that GSA (1) include, to the extent possible, details on what GSA is seeking in exchange for federal property in these solicitations and (2) develop criteria for determining when to solicit market interest in swap-construct exchanges. GSA agreed with GAO's recommendations.

section_title: Letter
paragraphs: The General Services Administration (GSA), which manages federal real  property on behalf of other federal agencies, including real property  acquisition, maintenance, and disposal, has faced long-standing  challenges with underutilized properties and with securing funding for new  construction and disposing of excess federal properties in a timely  manner. GSA also faces challenges replacing and maintaining aging  federal properties due to the current fiscal environment of shrinking  budgets throughout the federal government. To help address these  challenges, GSA has proposed expanding its use of “swap-construct”  exchanges, whereby GSA receives either a constructed asset, such as a  new building, or construction services, such as renovation work on an  existing federal building, from a nonfederal entity in return for title to  different federally owned property. GSA has proposed using swap- construct for several potentially large projects, including the consolidation  of the Federal Bureau of Investigation’s (FBI) headquarters operations  into a new location, in exchange for the existing FBI headquarters  building and its underlying land, and the relocation and consolidation of  federal workers in the Federal Triangle South area of Washington, D.C.,  in exchange for federal buildings and their underlying lands.
Given the potential importance of swap-construct exchanges to  addressing federal real property challenges, you asked us to review  issues related these exchanges. This report addresses:
GSA’s experiences with completed swap-construct exchanges;  the status of GSA’s proposed swap-construct exchanges; and  the potential benefits of swap-construct exchanges and factors that  can influence their future use.
To determine GSA’s experience with swap-construct exchanges, we  identified and reviewed the two completed swap-construct exchanges by  reviewing GSA’s exchange agreement documentation, appraisal reports,  and related GSA guidance, and interviewing GSA officials. To further  understand these swap-construct exchanges, we conducted site visits to  the locations of the exchanges (Atlanta, GA, and San Antonio, TX),  examined the properties, and interviewed GSA and nonfederal  participants in the exchanges. To determine the status of GSA’s proposed  swap-construct exchanges, we identified and reviewed the six exchanges  proposed by GSA (two in Washington, D.C., and one each in Miami, FL;  Los Angeles, CA; Baltimore, MD, and Lakewood, CO) using GSA  documentation, including solicitations for market interest and ideas for  addressing agency needs, called requests for information (RFI), and  interviews with GSA officials. We visited three of the properties (two in  Washington, D.C., and one in Baltimore, MD), which we selected based  on proximity to GAO, number of RFI responses, and the stage at which  the property was in GSA’s swap-construct process. To understand GSA’s  authority to complete swap-construct exchanges, we reviewed relevant  statutes and related GSA guidance. To further understand these  proposed exchanges, we reviewed responses to the RFIs that GSA  issued and conducted interviews with four of the seven respondents to  two of the three proposed exchanges that GSA was no longer pursuing to  further understand their experience with the proposals. We selected the  sample of respondents to include a variety of respondents, including a  developer, a firm that advises developers, a university, and a company  that provides property management services to the government. To  understand the possible exchange in Lakewood, CO, we analyzed GSA  documents, including agency property descriptions and tentative plans for  the swap-construct exchange, and interviewed GSA officials and a local  government official involved in the negotiations with GSA. To identify the  potential benefits of swap-construct exchanges and factors that can  influence their future use, we evaluated GSA’s approach to identifying  potentially successful swap-construct exchanges to propose for market  interest against guidance from the Office of Management and Budget  (OMB) and GAO’s Executive Guide on leading practices in capital  decision-making, and interviewed GSA officials, nonfederal participants  in the two completed exchanges, affected stakeholders, and  representatives of nongovernmental organizations familiar with GSA’s  real property projects. A full description of our scope and methodology  can be found in appendix I.
We conducted this performance audit from September 2013 to July 2014  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: GSA follows a prescribed process for the disposal of federal properties  that are reported as excess by federal agencies—a process that can  take years to complete. GSA first offers excess property to other federal  agencies. If no federal agency needs it or homeless provider expresses  an interest in it, the property becomes surplus and may be made  available for other uses through a public benefit conveyance, when state  and local governments, and certain nonprofits, can obtain the property at  up to 100 discount of fair market value when it is used for public  purposes, such as an educational facility. Ultimately, the property may be  disposed of by a negotiated sale for public use or public sale based on  GSA’s determination of the property’s highest and best use.
GSA collects rent from tenant agencies, which is deposited in the Federal  Buildings Fund (FBF) and serves as GSA’s primary source of funding for  operating and capital costs associated with federal real property.  Congress exercises control over the FBF through the appropriations  process, which designates how much of the fund can be obligated for  new construction and maintenance each fiscal year. According to GSA,  capital funding has not kept pace with GSA’s need to replace and  modernize buildings in its federal real property portfolio, which includes  about 1,500 buildings. We have recently found that GSA and other  federal agencies have pursued alternative approaches to address  challenges with funding federal real property projects. One alternative  approach is a swap-construct exchange between the federal government  and a nonfederal entity, such as a private developer. GSA has several  authorities to exchange federal property for constructed assets and, in  2005, was specifically authorized to exchange federal property for  construction services.
Swap-construct exchanges can be proposed by a nonfederal entity, such  as a private developer or local government, or by GSA. GSA’s process for  proposing and conducting a swap-construct exchange includes either  proposing a swap-construct exchange to a nonfederal entity that has  expressed an interest in acquiring a specific federal property or soliciting  market interest through an initial proposal, often an RFI, followed by more  detailed proposals. These more detailed proposals include requests for  qualifications (RFQ) to identify qualified developers and requests for  proposals (RFP). In a swap-construct exchange, the federal government  transfers the title of the federal property to a developer or other property  recipient after receiving a constructed asset or the completion of  construction services at a different location. Swap-construct exchanges  can involve swapping property and constructed assets or construction  services that are of equal value or can include cash to compensate for a  difference in value between the federal property and the asset or services  to be received by the government. According to GSA, highest priority is  assigned to swap-construct exchanges that involve exchanges of federal  property of equal or greater value than the asset or services provided by  the property recipient because these scenarios do not require  appropriation of federal funding. Figure 1 describes GSA’s decision- making process for proposing swap-construct exchanges and the three  scenarios that can result from an agreement for a swap-construct  exchange.
According to GSA, once the agency has decided to pursue an exchange  for a newly constructed asset or services, it follows GSA’s 1997 guidance  for real property exchanges of non-excess property. The guidance lays  out a number of steps, including: obtaining a property appraisal; using, if possible, one appraiser for all properties involved in an analysis and documentation of all benefits and costs of the exchange  to show why the exchange is in the best interest of the government.
In November 2013, the GSA Inspector General issued a memo noting  that GSA’s 1997 guidance is not specifically applicable to exchanges of  real property for services. In responding to the memo, GSA stated that it  was in the process of preparing guidance specific to exchanges for  services.
section_title: GSA’s Experience with Swap-Construct Is Limited to Two Exchanges for Parking Garages That Were Initiated by Private Sector
paragraphs: Since 2000, GSA has completed two swap-construct exchanges initiated  by companies—Emory University Hospital Midtown (then called Emory  Crawford Long Hospital) and H. E. Butt Store Property Company No. One  (HEBSPC)—that were interested in acquiring specific federal properties in  Atlanta, GA and San Antonio, TX, respectively. A now-retired  representative of Emory University Hospital Midtown and representatives  of HEBSPC told us that they were satisfied with the end result of the  exchanges, but added that there were challenges in the process that may  affect future swap-construct exchanges. Specifically, the representatives  told us that the exchanges took longer than anticipated, about 3 years in  Atlanta and over 5 years in San Antonio, and that, consequently, less  motivated parties may avoid or withdraw from future exchanges. GSA  officials told us that both exchanges were a good value for the  government because the properties and services received by the  government were of equal or greater value than the federal properties  disposed of in the exchanges. GSA officials added that the exchanges  were a good value for the government because both of the assets  disposed of were underutilized. However, these officials noted their lack  of experience with swap-construct exchanges at the time.
Atlanta Swap-Construct—In 2001, GSA exchanged a federal parking  garage (the Summit Garage) in Atlanta with 1,829 spaces on a 1.53-acre  parcel with Emory University Hospital Midtown for a newly constructed  parking garage (the Pine Street Garage) with 1,150 spaces on .92 acres  (see fig. 2). GSA also received a commitment from the hospital to lease  and manage the operations and maintenance of the Pine Street Garage  for 16 years and to lease spaces in it to federal employees. According to  GSA, at the time of the exchange, the Summit Garage was underutilized  because it included more parking spaces than GSA needed. Although  GSA utilized some of the extra spaces through a lease agreement with  the hospital, which is located nearby, the garage was, GSA added, in  deteriorating condition and was not it compliance with the Americans with  Disabilities Act (ADA). According to GSA, the swap-construct exchange  was in the best interest of the government because GSA received a new  ADA-compliant garage with a direct covered connection to both the  Peachtree Summit Federal building and a Metropolitan Atlanta Rapid  Transit Authority (MARTA) subway station in exchange for a garage that  was underutilized and in deteriorating condition. GSA added that the  exchange was beneficial to the government because it included the  hospital’s commitment to lease spaces not needed by the government for  16 years, with proceeds deposited into the FBF, and to cover operations  and maintenance work typically covered by GSA.
According to the now-retired representative of Emory University Hospital  Midtown who was involved with the swap-construct exchange, the  acquisition of the Summit Garage was crucial to accommodating a  hospital renovation and expansion project. However, the hospital was  aware that GSA needed parking spaces to accommodate federal tenants  in the Peachtree Summit Federal Building, so it proposed the swap- construct approach to GSA. The representative added that, although the  hospital was pleased with the end result of the transaction, the exchange  took about 3 years to complete, a time that was longer than anticipated  for the hospital and that may lead less motivated parties to avoid or  withdraw from future exchanges. GSA officials noted that the agency had  limited experience with this type of exchange, which may have  contributed to the length of time required to complete it. The  representative added that the exchange was also complicated in that the  appraised value of the new garage and any additional services had to be  equal to the appraised value of the Summit Garage. The now-retired  representative added that to address concern that the new and smaller  garage might appraise for less than the Summit Garage, the hospital  agreed with GSA to continue leasing spaces in the new garage and cover  operations and maintenance costs. As a result, the two parts of the  exchange—the garages and lease agreements—were equally appraised  at $6.6 million. According to GSA, although the hospital’s lease in the new  garage expires in 2017, the size of the garage allows the agency to meet  continued demand for federal parking in the vicinity of the Peachtree  Summit Federal Building.
San Antonio Swap-Construct—In 2012, GSA exchanged an  approximately 5-acre federal property (the Federal Arsenal site) in San  Antonio, TX, with HEBSPC for construction of a parking garage on  existing federal land for the recently renovated Hipolito F. Garcia Federal  Building and U.S. Courthouse (see fig. 3). According to GSA, at the time  of the exchange, the Federal Arsenal site was an underutilized asset  because of historical covenants limiting the ability to redevelop the land  and its buildings and because it was located on the periphery of the city  away from other federal assets. Although the property was partly utilized  by GSA’s Fleet Management and through a lease agreement with HEB  Grocery Company (HEB) for parking spaces, GSA officials told us that  there was no anticipated long-term government need for it. According to  GSA officials, the swap-construct exchange was in the best interests of  the federal government because the government received a new federal  parking garage for the Hipolito F. Garcia Federal Building and U.S.  Courthouse in exchange for a property that was underutilized.
HEBSPC representatives told us that the company was interested in  acquiring the Federal Arsenal site to accommodate existing space needs  and potential expansion of HEB’s corporate headquarters, near the site  and expressed this interest to GSA. The representatives added that  although the historic covenants on the property presented some potential  challenges, the company had prior experience renovating and utilizing  historic properties on HEB’s headquarters property. The representatives  also told us that the company had a long-standing interest in acquiring the  Federal Arsenal site prior to 2005, but during that time, the property could  not be sold because it was being partly used by GSA’s Fleet  Management. In 2005, however, GSA told HEBSPC about the need for  an additional parking for the Hipolito Garcia Federal Building and U.S.
Courthouse and, subsequently, proposed the swap-construct exchange to  HEBSPC, which had experience building parking garages. An official from  one of the tenant agencies in the federal building and courthouse told us  that the increased availability of parking with the new garage (150 new  spaces compared with 35 existing spaces) was one of the reasons the  agency decided to locate in the building. GSA officials told us that the  availability of the new parking spaces is critical to further attracting  tenants to the building, which is not fully occupied.
HEBSPC representatives told us the company was pleased with the  transaction and GSA’s management of the transaction. However, they  added that they would have preferred it to have been completed quicker  than the 5-plus years between the proposal and exchange of properties,  and noted that the time it took to complete the transaction may lead less  motivated parties to avoid or withdraw from such exchanges. According to  GSA officials, the transaction took longer than anticipated because GSA  did not have significant experience to use as a basis for completing the  transaction and because of fluctuations in real estate values due to the  economic recession that required additional property appraisals to be  completed. After four property appraisals between 2007 and 2009, GSA  and HEBSPC ultimately valued the Federal Arsenal site at $5.6 million.  According to GSA, the new parking garage was constructed to fully utilize  the $5.6 million value of the property that HEBSPC received.
section_title: GSA Is Pursuing Half of Its Six Swap- Construct Proposals
paragraphs: Since August 2012, GSA has proposed six swap-construct exchanges— one that the agency proposed directly to the City of Lakewood, CO, and  five in which GSA solicited market interest in exchanging federal property,  totaling almost 8-million square feet, for construction services or newly  constructed assets. After reviewing responses to these six proposals,  GSA is actively pursuing three, including: (1) a potential exchange of  undeveloped federal land in Denver with the City of Lakewood for  construction services at the Denver Federal Center; (2) a potential  exchange of the existing FBI headquarters building for a new FBI  headquarters building; and (3) a potential exchange of two federal  buildings in the Federal Triangle South area of Washington, D.C., for  construction services to accommodate federal workers elsewhere in the  city. According to GSA officials, although the agency has had authority to  exchange property for construction services since fiscal year 2005 and  had authority to exchange property for newly constructed assets prior to  that, until recently there has been limited agency interest using non- traditional property disposal and acquisition approaches, such as swap- construct exchanges. The officials added that since 2012 the agency has  more widely pursued swap-construct exchanges to address challenges  such as a rising number of agency needs and limited budgetary  resources. According to GSA officials, although the projects could involve  exchanges of equal value, similar to the Atlanta and San Antonio  exchanges, they could result in the government either receiving a  payment or paying to cover any difference in value between the property  to be exchanged and its construction projects.
GSA decided to propose a swap-construct exchange to the City of  Lakewood because the city had previously expressed interest in the  undeveloped federal land, totaling about 60 acres, and because GSA had  need for construction services at the nearby Denver Federal Center. A  representative of the City of Lakewood told us that the city was supportive  of the swap-construct approach because the services provided to GSA  would support employment for the local population, whereas if the city  were to purchase the property through a sale, the proceeds would not  necessarily be spent locally. GSA told us that negotiations for a possible  swap-construct exchange are ongoing.
We found that respondents expressed openness or interest in the swap- construct approach regarding four of the five exchanges for which GSA  solicited market interest, but generally this openness or interest was  limited to the proposed consolidation of the FBI’s headquarters operations  into a new location in exchange for the existing FBI headquarters building  and land. Several responses to GSA’s RFIs did not address swap- construct and instead provided other information, such as the credentials  of a particular developer and statements that GSA should ensure that  affordable housing is included in the redevelopment of federal properties  to be exchanged. Figure 4 describes swap-construct exchanges for which  GSA solicited market interest and responses to its RFIs.
For the proposed FBI headquarters swap-construct exchange, GSA  officials told us that the agency anticipates identifying qualified developers  by fall 2014 and awarding a contract to a developer for the transaction in  summer 2015. For the proposed swap-construct exchange involving  Federal Triangle South properties, GSA narrowed the scope of its  proposed exchange after reviewing responses to its RFI. Specifically, in  April 2014, the agency issued an RFQ to identify qualified developers for  a potential exchange involving two of the five properties included in the  RFI—the Cotton Annex and the GSA Regional Office Building—for  renovations to GSA’s headquarters building and construction services to  support the Department of Homeland Security’s headquarters  consolidation in Washington, D.C.
GSA officials told us that there was little or no market interest in potential  swap-construct exchanges in Baltimore, MD (the Metro West building)  and Miami, FL (the David W. Dyer Courthouse), and that different  approaches were now being considered to address them. In addition,  although GSA received some interest in a swap-construct exchange  involving another property, the U.S. Courthouse at 312 N. Spring Street in  Los Angeles (hereafter referred to as “the Spring Street Courthouse”),  GSA officials said the agency may need to pursue other approaches for  this property as well. The respondents to these potential exchanges  expressed various concerns. For example, 4 of 9 respondents expressed  concerns about the lack of detail regarding what GSA would expect in  return for the federal property and 4 of 9 respondents expressed  concerns about the amount of investment needed in the federal  properties to make the exchange profitable for the property’s recipient.  Three RFI respondents and representatives of one nongovernmental  organization familiar with GSA’s real property projects added that swap- construct may be a less viable approach in markets with a large number  of alternative real estate options.
According to developers and organizations familiar with GSA’s swap- construct proposals, the two exchanges for which GSA solicited market  interest and is still pursuing generally benefit from the inclusion of federal  properties located in an area with high real-estate values and, thus,  profitable redevelopment potential. Specifically, both properties are  located in areas of Washington, D.C., near mass transit and prominent  landmarks (see fig. 5). In addition, one of the potential projects—the  consolidation of the FBI headquarters operations into a new location— benefits from a well defined scope with GSA’s expectations for the  construction priority being sought by the agency in exchange for the  federal property considered for exchange in the proposal—the J. Edgar  Hoover Building. In 2011, GSA estimated that a new FBI headquarters  built on federal land would cost about $1.9 billion. According to GSA,  this estimate is out of date.
section_title: Swap-Construct Can Help Address GSA’s Needs, but Level of Detail in GSA’s Solicitations and Market Interest May Affect Future Use
subsections: section_title: Swap-Construct Can Help Facilitate New Construction and Developer Access to Federal Properties, but at Potentially Greater Cost to Some Stakeholders Than the Traditional Disposal Approach
paragraphs: GSA officials told us that swap-construct exchanges can help GSA  facilitate construction projects given a growing need to modernize and  replace federal properties, shrinking federal budgets, and challenges  getting funding appropriated from the FBF. Specifically, GSA officials  noted that swap-construct exchanges allow GSA to immediately apply the  value of a federal property to be used in the exchange to construction  needs, rather than wait for funds to be made available from the FBF. GSA  officials and a representative of a nongovernmental organization familiar  with GSA’s real property projects added that the exchanges can be  attractive for GSA because the agency can get construction projects  accomplished without having to request full upfront funding for them from  Congress. In addition, because swap-construct exchanges require  developers or other property recipients to address GSA’s construction  projects prior to the transfer of the title to the exchange property, federal  agencies can continue to occupy the federal property during the  construction process, eliminating the need for agencies to lease or  acquire other space to occupy during the construction process. GSA  officials also told us that swap-construct exchanges can help advance a  government-wide goal to consolidate agencies out of leased space into  federally owned space. For example, according to GSA, about half of the  FBI’s headquarters staff are located in the existing headquarters building  and the potential swap-construct exchange for a new FBI headquarters  could allow the agency to consolidate into one federally owned building.
The retired Emory University Hospital Midtown representative and  HEBSPC representatives added that swap-construct exchanges can help  the private sector acquire federal property that it otherwise may not be  able to acquire.
While swap-construct can facilitate GSA’s construction needs, it could  come at a greater cost to some stakeholders than the traditional disposal  approach. Specifically, because federal properties disposed of through  swap-construct are not declared excess or surplus (often because they  are still in use by federal tenants when the swap-construct is proposed  and during the exchange process), they do not go through the traditional  disposal process. Thus, the swap-construct approach may limit the  participation of nonfederal entities that would have been interested in  acquiring the properties through public benefit conveyance or other  means. For example, in a typical property disposal, eligible public and  nonprofit entities, such as institutions of higher education or homeless  organizations, can receive the federal property at up to a 100 percent  discount of fair market value when it is used for a variety of qualified  purposes, such as education and assistance for the homeless. Two  institutions of higher education that responded to GSA’s solicitations for a  swap-construct exchange expressed a preference for GSA to use the  traditional disposal process because the universities could then obtain it  by public benefit conveyance. A representative of a national advocacy  group for the homeless expressed concern that swap-construct could  serve as a way around the traditional disposal process and believes GSA  should offer public benefit conveyances prior to proposing swap-construct  exchanges.
section_title: GSA Does Not Always Clearly Identify Its Needs in Its Solicitations for Market Interest in Swap- Construct Exchanges
paragraphs: Swap-construct exchanges require developers to make potentially large  investments in federal construction projects prior to receiving title to  federal property used in the exchanges. GSA’s solicitations for market  interest in swap-construct projects do not always clearly identify what  projects the agency is seeking in exchange for the federal property. For  example, the RFIs for the potential Dyer Courthouse and Metro West  swap-construct exchanges did not specify what GSA was seeking as part  of an exchange. Two respondents to the Metro West RFI told us that  additional details regarding what GSA expects in return for the property  would be key to future consideration of a swap-construct exchange. In  addition, one developer we spoke to told us that the lack of detail  regarding what GSA expected in return for the Metro West property  influenced his company’s decision not to respond to the RFI. One of the  four respondents to the Spring Street Courthouse RFI added that  although GSA specified a need for a new building in exchange for the  Spring Street Courthouse, it was not clear that the new building was a  GSA priority. Specifically, the respondent noted that future swap- construct exchanges may benefit from additional information on GSA’s  needs, such as a strategic plan for a region where GSA is proposing a  swap-construct exchange.
GSA officials also told us that the agency does not always identify its  needs prior to releasing its RFIs for swap-construct exchanges. OMB  guidance notes that although federal agencies should not specify  requirements too narrowly in RFIs, agencies should identify clear agency  needs in the documents. Leading practices also note the importance of  identifying an agency’s needs and being transparent about these  needs. GSA officials acknowledged that while details were not always  specified in RFIs for swap-construct exchanges, details would be  specified in subsequent solicitations if GSA determines there is enough  market interest based on the RFI responses. GSA officials also stated  that fewer details were included in the RFIs because the agency wanted  to gauge market interest in the swap-construct transaction structure and  did not want to limit the creativity of potential RFI respondents. However,  by not providing some detail on the agency’s needs in its RFIs, GSA risks  limiting respondents’ ability to provide meaningful input and could miss  potential swap-construct opportunities for the properties.
section_title: Various Factors May Affect the Applicability of Swap- Construct Exchanges, and GSA Lacks Criteria for Identifying Good Exchange Candidates
paragraphs: GSA has generated interest in swap-construct for some projects, as  previously discussed, but several factors may limit the applicability of the  agency’s approach. Three of the four RFI respondents and one of the two  nongovernmental organizations we spoke to noted that the federal  property to be exchanged should have high redevelopment potential to  offset the developers’ risk of delayed access to the property until  providing GSA with its needed asset or construction services. Specifically,  a developer may have to expend significant time and money addressing  GSA’s needs for a new building or renovating an existing federal building  before receiving, redeveloping, and generating revenue from the  swapped federal property. GSA officials told us that it might be possible to  negotiate some early rights of access to the federal property before the  transfer of the property title to conduct activities such as site preparation  and demolition work, but at a developer’s risk. According to  representatives of the two nongovernmental organizations we spoke to,  GSA should also consider local market conditions in deciding if a property  is suitable for swap-construct because developers can often purchase or  lease similar properties they need from the private sector and quickly  access them for redevelopment. For example, a representative of a firm  that advises developers noted that the FBI headquarters building is  located in an area of Washington, D.C., with high potential for profitable  redevelopment and that there are few other similar properties available to  developers. In contrast, a Metro West RFI respondent and a Spring Street  Courthouse RFI respondent expressed concern that the federal  properties included in those exchanges, in Baltimore and Los Angeles,  respectively, may not have sufficient redevelopment potential to offset the  risks associated with delayed transfer of title under a swap-construct  approach.
Potential complications with exchanging property in one region for a  constructed asset or construction services in another region may also  limit the applicability of swap-construct exchanges. Specifically, GSA  officials told us that the pool of potential bidders is smaller and community  and political opposition can be higher when removing federal assets from  one region for a constructed asset or construction services in another. In  addition, the officials said project management can be more difficult for  GSA when an exchange is executed across different regions.  Consequently, the officials told us they try to locate the desired  constructed asset or construction services in the same region as the  federal property to be exchanged. GSA officials added that many  underutilized federal properties are not suitable for swap-construct  because they are in locations where GSA has limited needs for new  assets or construction services or because the federal properties are not  sufficiently desirable or would require too much investment from a  developer.
A representative of the firm that advises developers added that while the  swap-construct approach gives GSA greater control over the proceeds  from a property disposal, the federal government may get a better deal for  a new asset or construction services and potentially larger proceeds for  the disposed federal property if it were to use traditional acquisition and  disposal methods. In particular, the representative noted that developers  may be willing to pay more for federal property through a sale because  the developers could gain immediate access to the property for  redevelopment purposes. Similarly, the representative told us that GSA  may get a better deal on a new asset or construction services it if were to  pursue them through a traditional acquisition process because it would  invite more developer competition into the process, unlike in a swap- construct approach where a developer would also need to be willing to  receive federal property as consideration.
While GSA has guidance for determining if it should continue to pursue  an exchange that has already been proposed, it does not have criteria to  help determine when the agency should solicit interest in a swap- construct exchange. According to GSA officials, the agency considers  possible swap-construct exchanges on a case-by-case basis during its  annual review of its entire federal real property portfolio, but it lacks  guidance on how that case-by-case analysis should be conducted. GSA  officials added that because the agency only recently started using the  swap-construct approach, it does not have screening criteria for  determining when a swap-construct exchange should be proposed.  Moreover, we found that some proposed swap-construct exchanges have  been driven by GSA’s need to dispose of specific federal properties and  that, as previously discussed, GSA has not given the same amount of  consideration to construction projects to include in its proposed  exchanges. For example, in the Metro West and Dyer Courthouse swap- construct proposals, GSA identified federal properties to be exchanged,  but little or no information on construction projects it needed in a potential  exchange.
GSA has proposed swap-construct exchanges since 2012 to a mixed  reception, as previously noted, with little or no interest in exchanges  involving the Dyer Courthouse in Miami, the Spring Street Courthouse in  Los Angeles, and the Metro West building Baltimore, and high level  interest in an exchange only for the FBI headquarters consolidation  project. Both OMB and GAO guidance emphasize the importance of  using criteria to make capital-planning decisions. By not using screening  criteria to identify potentially successful swap-construct exchanges, the  agency may miss the best opportunities to leverage swap-construct  exchange or select properties for exchange that are better suited to the  traditional property disposal process and construction projects that are  better suited to traditional funding processes. GSA may also waste time  and money pursuing a potential swap-construct exchange that could be  better spent pursuing these traditional approaches.
section_title: Conclusions
paragraphs: GSA faces some key challenges in managing its federal real property  portfolio, especially in disposing of unneeded federal property and  financing the replacement or modernization of aging and underutilized  properties. In some cases, the swap-construct approach discussed in this  report might be a useful means through which GSA can more readily  achieve these property-related goals. However, GSA’s recent solicitations  for market interest in swap-construct have not always been well received  by potential bidders. Specifically, of the five swap-construct exchanges  GSA for which GSA solicited market interest since 2012, only two are  being actively pursued; the others generated little market interest. One  concern for potential bidders was the lack of detail regarding the  construction services that GSA hoped to gain in return for an asset it  would cede to the bidder. We found that in developing initial proposals for  a swap-construct exchange GSA often focused on identifying assets to  dispose of and gave less attention to what it needed in exchange for  those assets. Construction services or a newly constructed asset are fully  half of any swap-construct exchange, yet GSA has not always clearly  identified its needs when requesting feedback from potential bidders. The  agency’s intent may be to provide greater details at later stages of the  proposal process, but this approach may limit the ability of respondents to  provide meaningful input and lead to missed swap-construct opportunities  for GSA.
At present GSA does not have criteria for identifying viable exchanges in  the sense that both sides of the potential transaction are fully defined and  communicated to potential interested parties. OMB and GAO have  previously identified the importance of criteria in making agency  decisions. By not using screening criteria to make its choices, GSA may  be pursuing swap-construct exchanges with less potential for success,  and potentially delaying time that it could be spending on traditional  disposal and appropriation processes. Similarly, GSA may also miss  opportunities to leverage swap-construct more widely moving forward,  which could be crucial given ongoing budgetary challenges.
section_title: Recommendations
paragraphs: In order to identify potentially successful swap-construct exchanges  during GSA’s review of its federal real property portfolio and reduce  uncertainty for those responding to GSA’s solicitations for possible swap- construct exchanges, we recommend that the Administrator of GSA take  the following two actions:  1.  include, to the extent possible, details on what GSA is seeking in  exchange for federal property in its solicitations, including requests for  information, for potential swap-construct exchanges and  2.  develop criteria for determining when to solicit market interest in a  swap-construct exchange.
section_title: Agency Comments
paragraphs: We provided a draft of this report for review and comment to GSA. GSA  concurred with the report’s recommendations and provided additional  information on the proposed swap-construct exchange with the City of  Lakewood, Colorado, which we incorporated. GSA’s letter is reprinted in  appendix II.
As arranged with your offices, unless you publicly disclose the contents  earlier, we plan no further distribution of this report until 30 days after the  date of this letter. At that time, we will send copies of the report to the  Administrator of GSA. Additional copies will be sent to interested  congressional committees. We will also make copies available to others  upon request, and the report is available at no charge on the GAO  website at http://www.gao.gov.
If you have any questions about this report, please contact me at (202)  512-2834 or wised@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. Major contributors to this report are listed in appendix III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives were to determine (1) GSA’s experiences with completed  swap-construct exchanges; (2) the status of GSA’s proposed swap- construct exchanges; and (3) the potential benefits of swap-construct  exchanges and the factors that can influence their future use. We  described GSA’s swap-construct process using information gathered from  GSA guidance and interviews with GSA officials. In addition, we  reviewed related laws that facilitate GSA’s swap-construct exchanges.
To determine GSA’s experience with swap-construct exchanges, we  identified and reviewed the two swap-construct exchanges (Atlanta, GA,  and San Antonio, TX) completed by GSA since 2000 through GSA  exchange agreement documentation, appraisal reports, and property  descriptions, and through interviews with GSA officials. We conducted  site visits to Atlanta and San Antonio, examined the properties involved in  the exchanges, and interviewed GSA officials and nonfederal  participants—H. E. Butt Store Property Company No. One (HEBSPC) and  Emory University Hospital Midtown—about their experience with the  transactions.
To determine the status of GSA’s proposed swap-construct exchanges,  we identified and reviewed the six proposed swap–construct  exchanges—two in Washington, D.C., and one each in Miami, FL; Los  Angeles, CA; Baltimore, MD; and Lakewood, CO—using GSA  documentation, including GSA solicitations for possible exchanges,  known as requests for information (RFI), and through interviews with GSA  officials. We conducted site visits to three of the properties involved in the  proposed exchanges (the Cotton Annex and Regional Office Building in  Washington, D.C and the Metro West building in Baltimore, MD),  examined the properties, and spoke with GSA officials about the RFIs  that included these properties. We selected these properties based on  nearby proximity (within a 50-mile radius) and to include a site visit to  both a location where the property or properties in the RFI generated 10  or more responses and to a location were the property or properties in the  RFI generated fewer than 10 responses. To further identify a property or  properties to visit, we then limited our selection to property or properties  that were furthest along in GSA’s proposed swap-construct process. In  addition, to better understand the status of these proposed exchanges,  we analyzed the responses GSA received to its solicitations for these  swap-construct exchanges and discussed the proposed exchanges with  four of the seven respondents to the Metro West and Spring Street  Courthouse RFIs. We did not interview RFI respondents to the proposed  swap-construct exchanges that involved the FBI headquarters and  Federal Triangle South properties since GSA is actively in discussions or  negotiations with these respondents. We selected our sample of the  respondents to include a variety of respondents, including a development  company, firm that advises developers, a university, and a company that  provides property management services to the government. Because the  RFI respondents were selected as a nonprobability sample, the  information gained in these interviews cannot be generalized to make  conclusions about all of GSA’s swap-construct exchanges. However, they  illustrate the views of a diverse set of respondents with experience related  to these exchanges. To understand the possible exchange in Lakewood,  CO, we analyzed GSA documents, including agency property  descriptions and tentative plans for the swap-construct exchange, and  interviewed GSA officials and a local government official involved with the  negotiations with GSA.
To identify the potential benefits of swap-construct exchanges and factors  that can influence GSA’s future use these exchanges, we evaluated  GSA’s approach to identifying potentially successful swap-construct  exchanges to propose against the OMB Capital Programming Guide and  the GAO Executive Guide on Leading Practices in Capital Decision- Making, and interviewed GSA officials; nonfederal participants in  completed swap-construct exchanges (HEBSPC and Emory University  Hospital Midtown); stakeholders in federal property acquisition and  disposal processes (the National Capital Planning Commission and the  National Law Center for Homelessness and Poverty, respectively); and  nongovernmental organizations familiar with GSA’s swap-construct  exchanges (the National Council for Public-Private Partnerships and the  Urban Land Institute). In addition, we analyzed written responses GSA  received to its solicitations for proposed swap-constructs exchanges and  information from interviews we conducted with the four respondents,  described above, to identify any factors that may affect GSA’s future use  of swap-construct exchanges.
We conducted this performance audit from September 2013 to July 2014  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Comments from the General Services Administration
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Keith Cunningham, Assistant  Director; Amy Abramowitz; Dawn Bidne; Timothy Guinane; James  Leonard; Sara Ann Moessbauer; Josh Ormond; and Crystal Wesco made  key contributions to this report.
section_title: Related GAO Products
paragraphs: Capital Financing: Alternative Approaches to Budgeting for Federal Real  Property. GAO-14-239. Washington, D.C.: March 12, 2014.
Federal Real Property: Excess and Underutilized Property Is an Ongoing  Challenge. GAO-13-573T. Washington, D.C.: April 25, 2013.
High-Risk Series: An Update. GAO-13-283. Washington, D.C.: February  14, 2013.
Federal Courthouses: Recommended Construction Projects Should Be  Evaluated under New Capital-Planning Process. GAO-13-263.  Washington, D.C.: April 11, 2013.
Federal Buildings Fund: Improved Transparency and Long-term Plan  Needed to Clarify Capital Funding Priorities. GAO-12-646. Washington,  D.C.: July 12, 2012.
Federal Real Property: National Strategy and Better Data Needed to  Improve Management of Excess and Underutilized Property.   GAO-12-645. Washington, D.C.: June 20, 2012.
Federal Real Property: The Government Faces Challenges to Disposing  of Unneeded Buildings. GAO-11-370T. Washington, D.C.: February 10,  2011.
Federal Courthouse Construction: Estimated Costs to House the L.A.  District Court Have Tripled and There Is No Consensus on How to  Proceed. GAO-08-889. Washington, D.C.: September 12, 2008.
Federal Real Property: Most Public Benefit Conveyances Used as  Intended, but Opportunities Exist to Enhance Federal Oversight.   GAO-06-511. Washington, D.C.: June 21, 2006.
Executive Guide: Leading Practices in Capital Decision-Making.  GAO/AIMD 99-32. Washington, D.C.: December 1, 1998.