A new Government Accountability Office report outlines how a General Services Administration plan to swap two federal office buildings with the private sector ultimately fell apart after four years of planning.
The swap, which involved trading the GSA Regional Office Building and the Cotton Annex, was first planned in 2012 as a way for the agency to unload underused federal properties to the private sector in exchange for construction services to maintain other buildings.
But the GAO said in its June 23 report that the methodologies used by GSA to appraise the buildings' value were greatly out of line with what private investors were willing to pay.
Related: Read the report
Such swaps have been a key instrument in GSA's arsenal to reduce both its federal property footprint, but also address building maintenance costs without having additional budget appropriations.
But GAO said that the said agency had only limited experience with the swaps, citing successes of previous exchanges in Atlanta, Ga. and San Antonio, Texas.
GSA had originally planned to swap five buildings in the Federal Triangle South project; including Department of Energy's Forrestal Building, the Federal Aviation Administration's Orville and Wilbur Wright Buildings, in addition to the Cotton Exchange and ROB.
In exchange for the swaps, private investors would cover the costs of completing a modernization project at GSA’s headquarters that were was currently underway. By September 2013, the agency decided to include only the ROB and Cotton Exchange in the swap to fund its modernization and the revitalization of four buildings at the former St. Elizabeth Hospital’s campus, which will become the Department of Homeland Security’s new headquarters.
But the appraisals used by GSA to value the properties did not account for things like occupancy rate costs, possible higher interest rates or how the time to transfer the property could affect investor income.
As a result, bids from three private investors came in lower than GSA anticipated to justify the construction costs. The agency cancelled the project on Feb. 18 after determining the project was no longer financially viable.
The report said that GSA officials issued guidance in 2014 on how to more effectively assess private-sector risk when crafting the swaps and had developed plans on how to better communicate project goals to stakeholders involved.
GAO officials offered no further recommendations.
