RD452 - Department of General Services Combined Real Estate Report - November 15, 2014


Executive Summary:
Introduction

This report is provided in compliance with Section 4-8.01e of Chapter 2, 2014 Special Session I Acts of the General Assembly, which provides:

"e. Utilization of State Owned and Leased Real Property:

1. By November 15 of each year, the Department of General Services (DGS) shall consolidate the reporting requirements of § 2.2-1131.1 and § 2.2-1153 of the Code of Virginia into a single report eliminating the individual reports required by § 2.2-1131.1 and § 2.2-1153 of the Code of Virginia. This report shall be submitted to the Governor and the General Assembly and include (i) information on the implementation and effectiveness of the program established pursuant to subsection A of § 2.2-1131.1, (ii) a listing of real property leases that are in effect for the current year, the agency executing the lease, the amount of space leased, the population of each leased facility, and the annual cost of the lease; and, (iii) a report on DGS’s findings and recommendations under the provisions of § 2.2-1153, and recommendations for any actions that may be required by the Governor and the General Assembly to identify and dispose of property not being efficiently and effectively utilized."

Summary of Savings and Income during the Period

Lease Savings: $5,929,673
Lease Administration Savings: $124,426
Surplus Real Estate Sales Revenue: $11,674,256
Surplus Real Estate Under Contract (receipt of revenue upon closing): $13,568,000
Surplus Properties Listed For Sales (Based on Appraised Value): $29,095,000
Total Savings/Income/Pending Income: $60,391,355

Lease savings throughout this report are divided between cost savings and cost avoidance. Cost savings is defined as the reduced occupancy costs typically attributable to renegotiation of existing rents, reconfiguration of space to reduce rented areas, collocation efficiencies, and relocating from leased to owned properties, when that is the most economical choice. These are savings which reduce the real cost of doing business for the agency.

Cost avoidance is typically attributable to improved economic terms through value added in negotiations. Examples of cost avoidance include the landlord’s agreement to pay a larger share of the cost of tenant improvements or the landlord’s agreement to pay for furnishings and equipment ordinarily paid by the tenant.

The combined report for 2014 follows.

1. Division of Real Estate Services – Program Status

Virginia Code § 2.2-1131.1 requires an annual report on the progress of DGS’ efforts to establish performance standards for the acquisition, lease and disposition of real property and for the management and utilization of such property at the individual agency and statewide levels to maximize the use of the Commonwealth’s inventory of properties.

• Lease Administration: DRES is currently responsible for administering 542 leases with combined annual rental obligations of approximately $58 Million. In addition to ensuring that rental payments are made on time and in the correct amounts, this process allows DRES to identify and correct billing errors related to annual rent escalations and applicable operations and maintenance costs, saving agencies $124,426 during the past year. Exhibits A-1 and A-2 are a complete list of the current expense leases and the income leases administered by DRES.

• Integrated Real Estate Management System (IREMS): Last year DRES reported that our software vendor, BricsNet, had closed its business. Our contract allowed DGS to obtain the source code, and we originally planned to customize that system to better suit our needs. However, after considering the options with the advice of a neutral third party vendor, we have decided to pursue another software package. We solicited for vendors and are finalizing negotiations with the selected vendor. We anticipate implementing a new system in 2015 that will enhance DRES’ management of real estate transactions and records and provide support to other agencies of the Commonwealth.

• Real Estate Records: Since April 2011, we have focused resources on collecting, reviewing and uploading data in order to meet the requirements of Virginia Code § 2.2-1136, as amended by the 2011 Session of the General Assembly. The amendment required DGS to complete an inventory of all real property owned by state departments, agencies and institutions by January 1, 2012. That inventory was completed and, in accordance with the statute, we annually update the inventory to confirm that the information is current and correct. A current inventory of state owned real estate is posted on the DRES website ( http://www.dgs.virginia.gov/DivisionofRealEstateServices/StateOwnedRealEstate/tabid/1524/Default.aspx).

• DRES Strategic Planning: Using information on the current cost and utilization of office facilities, including current staffing levels, DRES has been able to develop long term plans. These long term plans forecast leasing activities several years out and identify potential collocation and other opportunities that require longer range planning to realize. Effective strategic planning is an on-going task and the plan was reviewed in depth when the Commonwealth’s commercial brokerage representation changed from CB Richard Ellis of Virginia to Divaris Real Estate Inc. in 2014.

• Space Utilization: We continue to advocate more prudent use of space. While DRES has been successful in reducing the square feet per person metric for the Commonwealth, additional strategies are recommended to our client agencies. These strategies include increased teleworking and more creative use of space through hoteling or other workforce/workplace strategies. Since these matters involve management styles and policies within the agencies, as well as HR policies, DRES is not in a position to do more toward this goal at this time. DRES can recommend and prepare to act if and when any agencies incorporate these strategies into their overall management strategies.