Three Questions with Jay Brown
Managing Director
Alvarez & Marsal Real Estate Advisory Services, LLC

Jay Brown is a Managing Director with Alvarez & Marsal Real Estate Advisory Services, LLC. He recently spoke with the editors of “Managing Change” to discuss his role at the firm and his views on federal real property, and offered advice for better managing real property assets. For more information on his organization, visit http://www.alvarezandmarsal.com.

Q: What does your job entail?

A: I help clients, primarily government and quasi-government agencies, unlock value from underutilized real property assets, allowing them to use that value to support important mission-critical activities. My team works with these agencies to identify underutilized land and facilities; determine the fair market value for these assets; then assist them in executing a public-private (or public-public) transaction that converts this value into tangible benefits for the agency. In most cases, the benefits include avoiding the cost associated with operating and maintaining the underutilized assets and receiving in-kind consideration for the out-lease of these assets.

Q: What do you see as the relationship between federal real property asset management and fiscal responsibility?

A: Unfortunately, I believe the industry sees these as conflicting goals. By definition, real property asset management means tracking and projecting the performance of real property assets, and based on this information, making appropriate investments in those assets in order to maximize their economic value over its useful life. This requires a mid- to long-term view of the asset and regular capital investments in the asset.

Conversely, fiscal responsibility is by definition – and practice – an exercise in short-term (typically one year) budget balancing. Too often federal real property asset management is sacrificed in the name of fiscal responsibility, which leads to a chronic underinvestment in these assets. Because the Federal government does not have a capital budget, funding for capital projects (including capital repair and replacement of major building components and systems) has to compete for funding with all other Federal government programs. The annual budget process, being largely a political process, funds those activities that have the greatest political and constituent support. There is no constituency for investment in roofs and HVAC systems for Federal buildings, except for the real property management professionals within the Federal government who are desperately trying to operate and maintain these facilities on a shoestring – and they are prohibited from lobbying.

Q: What advice would you offer for better real property asset management?

A: To the extent practical, Federal government agencies that own real property assets, but whose core business is not real property asset management, should explore out-leasing. Out-leasing can serve as a means of creating an enterprise value for assets that are underutilized, thereby attracting private capital as the investment funding source for these assets.

The Federal government should use out-leasing strategies such as Enhanced Use Leasing (EUL) and privatization as a key component of its overall asset management strategy. These tools will help create the enterprise value and economic incentives that will generate the capital investment needed to maximize the economic life of the government’s real property assets.