Federal Property Management  

Professor Andrew Baum

September 19th 2014

Introduction

How should government property assets be managed?

Who owns the asset?

Who manages and operates the asset?

ModelsOwner occupiedLeasedPartnership operated

Ownership

Capital availability

Commitment to future liabilitiesRefurbishment costs

Management

Office design and layout

Building maintenance

Facilities management

Model 1: owner-occupation

Ownership provides control

Fit for purpose facilities and management?

Flexibility?

Model 2: leasehold

Sale and leaseback can maximise capital receipts

Shared control: who manages facilities?

Building 1

• Private tenants• Short leases• Value: £900m psf

Building 2

• Government tenant• 20 year lease• Value: £1,500 psf

Example: building 2

Government tenant, 20 year lease

Rent £500,000, fixed

Government bond yield: 7%

Value?

Example: building 2

Government tenant, 20 year lease

Rent £500,000, indexed to inflation

Government indexed bond yield: 3%

Value?

Model 3: partnership

Operating partner owns asset

Provides combination of space and facilities

Flexible for occupier

Expensive?

Summary

How should government property assets be managed?Who owns the asset?Who manages and operates the asset?

ModelsOwner occupiedLeasedPartnership operated

What would a private business do? Is government different?