RD545 - Department of General Services Combined Real Estate Report – November 15, 2016

Executive Summary:

This report is provided in compliance with Section 4-8.01e of Chapter 665, 2015 Virginia 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: $5,933,600
Lease Administration Savings: $47,504
Surplus Real Estate Sales Revenue: $6,859,000
Surplus Real Estate Under Contract (receipt of revenue upon closing): $1,400,000
Surplus Real Estate Being Negotiated for Sale (Based on Appraised Value): $31,800,000
Surplus Properties Listed For Sale (Based on Appraised Value): $15,425,000
Total Savings/Income/Pending Income: $60,465,104

Lease savings throughout this report are divided between cost savings and cost avoidance. Cost savings are 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 2016 follows.

1. DGS, 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: DGS is currently responsible for administering 521 leases with combined annual rental obligations of approximately $61.6 million. In addition to ensuring that rental payments are made on time and in the correct amounts, DGS identifies and corrects billing errors related to annual rent escalations and applicable operations and maintenance costs, saving agencies $47,504 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 DGS. In addition, there are 121 agreements for private entity and agency occupied space on the Capitol Campus.

• COVA Trax: In January 2016, DGS successfully completed implementation and went live with the Core Portfolio, Lease Management and Financial modules of the new real estate records management system, COVA Trax. Complete records for all owned and leased real estate assets, including current and future rental obligations for administered leases and over 24,000 documents, were migrated from the previous IREMS system. In July 2016, the system was expanded to include a Transactions Management module to track active projects and expanded again in September to include the Space Management module which will provide an opportunity to maintain space/building plans with each of the property records. The Space module will also be used by DGS Bureau of Facilities Management and Emergency Management.

During the COVA Trax procurement, the General Assembly approved Item number 252 C.1 – C.3 2014 Special Session I Acts of the Virginia Assembly – Chapter 2, that requires the Secretary of Finance and the Secretary of Administration to convene a work group to consist of representatives from the Department of Accounts (DOA), the Department of General Services (DGS), and the Department of the Treasury (TRS) to evaluate options for improving the efficiency and accuracy of the Commonwealth’s current methods of collecting and maintaining state property data. DGS is currently working with the software vendor, DOA and TRS to gather their requirements to finalize a statement of work to configure the fixed assets module to meet their needs. DGS continues to work with VITA and the APA, who are overseeing the project.

COVA Trax is also being considered by DMME to implement and utilize the Sustainability module to better track the Commonwealth’s energy usage. The DGS Bureau of Capital Outlay is considering using COVA Trax to assist agencies with their maintenance and reserve budgeting.

• Real Estate Records: To meet the requirements of Virginia Code § 2.2-1136, as amended by the 2011 Session of the General Assembly, DGS was to complete an inventory of all real property owned by state departments, agencies and institutions by January 1, 2012. 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 DGS website.
( http://www.dgs.virginia.gov/DivisionofRealEstateServices/StateOwnedRealEstate/tabid/1524/Default.aspx)

• Real Estate Marketing Notifications: To meet the requirements of Virginia Code § 2.2-1156, as amended by the 2016 Session of the General Assembly, DGS was to post a report from the Commonwealth’s electronic procurement system, eVA, on the DGS website. The report was created and became active in October. The report includes the current leasing opportunities and sales of surplus real property posted on the Department’s Virginia Business Opportunities website and it is also available weekly by electronic subscription. ( http://www.dgs.state.va.us/DGSOverview/tabid/1573)

• DGS DRES Strategic Planning: DGS manages the real estate of the Commonwealth as a portfolio reaching across agencies. Using information on the current cost and utilization of office facilities tracked with our records management system, including current staffing levels reported by agencies, DGS identifies and attempts to match surplus owned and leased properties with the open needs of all executive branch agencies, potential collocation, the building of lease requirements in market places to provide greater buying power and other efficiency opportunities that may be obtained through long range planning and occupant agency cooperation. Effective tactical space planning and portfolio strategic planning efforts are an on-going task for DGS, utilizing the resources of the Commonwealth’s commercial real estate broker to maximize our efforts.

• Space Utilization: DGS continues to advocate more prudent use of owned and leased space. DGS strives to utilize current real estate designs, technology and delivery methods of services from client agencies as their budgets permit. DGS is on schedule to complete the space guidelines update by year end. While DGS 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 electronic and on-line solutions, in the delivering of agency services, increased teleworking and more creative use of space through hoteling or other workforce/workplace strategies.

Since these matters involve management styles and policies within each agency, as well as human resource policies, DGS is in a position to make recommendations; however, DGS does not have the authority over an agency’s operation for the implementation of those recommendations at this time. DGS has partnered with the Department of Social Services in the transformation of the working office for their Division of Child Support Enforcement. Thus far this project has yielded a 24,474 square footage reduction in leased space and rent savings in the amount of $674,647 over the respective lease terms. DGS can act if and when any agencies incorporate modern space saving practices, current human resource workplace guidelines and technology improvement strategies into their overall management strategies.