Last week, the General Services Administration (GSA) released a list of hundreds of non-core properties owned by the federal government, slated for potential disposal.
The list, which included 443 properties, 123 of which are in the Washington, D.C. metro area, was removed the following day, leaving many unanswered questions. The fate of these properties, particularly those in D.C., could have wide-reaching effects on commercial real estate markets across the country.
The federal government has been trimming its real estate portfolio for over a decade, a trend that began during President Barack Obama’s second term, according to Ed Gregorowicz, principal at Avison Young in Tysons, Virginia. The efforts, spurred by cost-saving measures in the wake of the global financial crisis, have continued through subsequent administrations. Under Obama’s “Freeze the Footprint” initiative, federal real estate holdings have been reduced by approximately 28% in the last 10 years, noted Scott Homa, Americas head of property sector research at Jones Lang Lasalle Inc.
While reducing federal real estate isn’t a new concept, the scale, speed, and strategy with which the current administration plans to cut space are unprecedented. Since President Donald Trump’s inauguration, the Department of Government Efficiency (DOGE), led by Elon Musk, has aggressively reduced federal jobs, funding, and real estate. As of March 5, DOGE had eliminated nearly 9.6 million square feet of space, totaling $468 million in savings. However, experts believe these moves largely target low-hanging fruit, with 98% of the canceled leases having flexible terms or expired agreements.
Over half of the canceled leases were in the D.C. area. Despite these reductions, federal real estate requirements remain significant. Many agencies need specialized facilities, such as those that comply with strict security measures, like Sensitive Compartmented Information Facility (SCIF) standards. Other factors include the need for high ceilings, specific loading areas, proximity to transit, and sustainability features.
While many federal buildings are unique or outdated, they are often located on prime, downtown real estate. The properties on the GSA’s list, especially those in Washington, D.C., sit on some of the most desirable land globally, according to Homa.
A GSA spokesperson clarified that a new list of non-core properties might be published in the future, after evaluating input from stakeholders. They also noted that the agency is considering different approaches for disposal, including public-private partnerships, sale-leasebacks, and co-working agreements between agencies.
The Process of Selling Federal Real Estate
The release of the initial property list generated significant interest across the real estate market, but the actual process of selling these buildings could take time. The GSA is required to follow specific regulations in disposing of federal real estate. Properties must first be reported as “excess” by the respective agency, after which they are offered to other federal agencies. If no agency shows interest, the property may be deemed “surplus” and offered for other uses, such as public benefit conveyances or potential homeless services under the McKinney-Vento Homeless Assistance Act.
If no public use is found, the GSA can negotiate a sale to state or local governments at appraised market value. If no government or nonprofit entities express interest, the property can be sold to the public through a competitive bidding process. The GSA’s sale process typically remains private until buildings are eligible for market sale.
The GSA has already sought input from the commercial real estate industry to determine the best ways to market and sell its properties. Gregorowicz notes that until the government fully understands its workforce and mission needs, it’s difficult to predict how these cuts will ultimately affect the space market.
Diverse Federal Properties Pose Challenges
Each of the 443 properties listed presents its own set of challenges, making the disposition process a complicated task. Steve Teitelbaum, an adjunct professor at American University, compared the properties to a used-car lot.
“There are 443 different models of used cars, all of which you’ve announced, with a sign outside, are in deplorable condition,” said Teitelbaum.
The GSA acknowledged that years of underfunding have left many federal buildings “functionally obsolete.” The U.S. office market’s post-pandemic struggles further complicate the situation. Class B and C buildings are becoming less desirable, which raises doubts about how much demand such federal properties will attract.
Many federal office buildings, especially those built decades ago, may be sold at steep discounts to encourage redevelopment or demolition. Some properties, like the J. Edgar Hoover Building, home to the FBI, face structural challenges that make conversion difficult, especially considering modern office needs, including technology infrastructure and workspace configurations.
“Zoning regulations could further limit what buyers can do with these properties,” Gregorowicz warned.
However, Teitelbaum suggests that if federal buildings are sold at significant discounts, it could be financially viable to convert them into residential spaces.
Opportunities For Redevelopment
Recent examples of obsolete federal buildings repurposed for new uses show potential for such transformations. Gregorowicz pointed to a 14-acre site in Cambridge, Massachusetts, redeveloped by MIT into life sciences space. Homa cited the former West Heating Plant in D.C.’s Georgetown, now slated for luxury condos, and the historic U.S. Department of Agriculture Cotton Annex, which is being converted into a high-end residential project. The Trump Organization also transformed the Old Post Office building into a Waldorf Astoria hotel.
These examples illustrate how federal property sales could spur revitalization in struggling areas. However, converting large government buildings into new uses presents significant infrastructure and financial hurdles. Despite these challenges, the timing may be fortuitous for the commercial real estate market, which is beginning to recover as major employers, including the federal government, call workers back to offices.
While there are still many uncertainties about the success of these conversions, Homa sees considerable opportunity in the sale of federal real estate.
“For some of the targeted assets, it’s irreplaceable real estate,” Homa said. “It’s a big portfolio, and while not all the properties are in prime locations, there are significant opportunities here.”
Source: SFBJ
