Non-Excess Justification: The Gateway to Enhanced Use Leasing

Current real property asset management regulations require that surplus inventory be accounted for and disposed of as quickly as possible. But what of real property holdings that, while not necessarily fully used, should still be maintained in an agency's inventory?

The opposite side of the coin of identifying surplus real property is what's increasingly becoming known as "non-excess justification." Numerous agencies are beginning to use non-excess justification as a means to maintain their facilities despite budgetary shortfalls.

It's simple: With federal operations and maintenance budgets being capped, there is a very real chance that some of your real property holdings may show signs of unintended neglect. You may be able to subsidize the maintenance of your real property holdings through enhanced use leasing.

Jay Brown, Managing Director of Alvarez & Marsal Real Estate Advisory Services, LLC, explained that "non-excess justification is increasingly being used as part of the approval process for outleasing."

Brown maintains that enhanced use leasing is an asset management tool in that it provides a cash flow benefit to government agencies. Government organizations can, and ought to, consider outleasing their underutilized facilities, he added.

While there are no formal criteria established yet for creating non-excess justification documentation, Brown said that such justification typically lays out a logical argument for why retention of seemingly surplus real property is essential over the long run. In the case of enhanced use leasing, a government agency may decide it needs to maintain fee simple ownership of the property even if it chooses to give up use through a leasing arrangement. That decision must be justified if it is to be approved by the GSA.

Even though most surplus assets flow through the GSA, several agencies have delegated authority to make decisions regarding enhanced use leasing of their facilities. The Veterans Administration has an enhanced use leasing program, for example, as do both the Department of Energy and the Department of the Interior.

In the case of the Department of Defense, enhanced use leasing guidelines are addressed in Section 2667, title 10 of the Defense Authorization Act.

The DoD has been leading the way on establishing criteria for non-excess justification criteria. Among the documented reasons DoD has provided for maintaining real property holdings:

• Antiterrorism/force protection - Maintaining a buffer zone, to prevent loss of accountability
• Vulnerability/increased protection costs - If you take away the buffer zone between the facility and the surrounding environment, there are still appreciable costs attached to establishing and maintaining clearances for access
• Future mission requirements - If an installation is known to be moving to full mobilization, for example, that might be sufficient grounds to consider the facility in question as non-excess, even if it is currently under-utilized or not utilized.
• Training land - If broad expanses of under-developed land are considered to be a primary asset for testing (munitions, vehicle performance, etc.), that real property, while seemingly underutilized, is in fact critical to mission fulfillment.

As greater focus is placed on identifying surplus real property inventory, it may be important for your organization to learn more about the concept of "non-excess justification" as a means to establish an enhanced use leasing program for your department or agency.