Overseas Real Estate: Millions of Dollars Could Be Generated By Selling
Unneeded Real Estate (Letter Report, 04/23/96, GAO/NSIAD-96-36).
The State Departments owns more than $10 billion in real estate at 200
locations overseas. GAO reviewed State's efforts to identify and sell
excess or underused real estate and to use the proceeds for other
high-priority real property needs. GAO reported in 1995
(GAO/NSIAD-95-73) on the potential budget savings from selling expensive
property in Tokyo and on the problems in State's management of
properties abroad. This report (1) identifies real estate at other
locations that could possibly be sold to provide money to meet other
real estate needs, (2) describes problems that State has had in deciding
which properties to dispose of, and (3) explains how State uses the
proceeds from the properties it does sell.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: NSIAD-96-36
TITLE: Overseas Real Estate: Millions of Dollars Could Be
Generated By Selling Unneeded Real Estate
DATE: 04/23/96
SUBJECT: Property disposal
Real estate purchases
Real estate sales
Internal controls
Accounting procedures
Government facilities
Embassies
Consulates
Surplus federal property
Federal property management
IDENTIFIER: Singapore
Brasilia (Brazil)
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Cover
================================================================ COVER
Report to Congressional Requesters
April 1996
OVERSEAS REAL ESTATE - MILLIONS OF
DOLLARS COULD BE GENERATED BY
SELLING UNNEEDED REAL ESTATE
GAO/NSIAD-96-36
Overseas Real Estate
(711115)
Abbreviations
=============================================================== ABBREV
FAM - Foreign Affairs Manual
FBO - Office of Foreign Buildings Operations
Letter
=============================================================== LETTER
B-266138
April 23, 1996
Congressional Requesters
The Department of State owns more than $10 billion in real estate at
200 locations overseas. We reviewed State's efforts to identify and
sell excess or underutilized real estate and to use the proceeds for
other high-priority real property needs. In 1995, we reported on the
potential budget savings that selling high-value properties in Tokyo
could have and on the problems in State's management of overseas real
property.\1 This report (1) identifies real estate at other locations
that could possibly be sold to provide funds for other real estate
needs, (2) sets forth the problems State has in deciding what
properties to dispose of, and (3) discusses how State uses the
proceeds from properties it does sell.
We conducted this review under our basic legislative responsibilities
and are addressing it to you because of the budget implications of
buying and selling buildings abroad.
--------------------
\1 In April 1995, we reported that State owns a deputy chief of
mission residence in Tokyo, Japan, which was valued at $92 million in
1991. A replacement residence could have been provided for $4
million on other State-owned property, but State did not sell the
high-value property. Overseas Real Estate: Inaction on Proposals to
Sell High-Value Property in Tokyo (GAO/NSIAD-95-73, Apr. 7, 1995).
Our May 1995 report discusses the progress made and some of the
problems still facing the Department in real property management.
State Department: Additional Actions Needed to Improve Overseas Real
Property Management (GAO/NSIAD-95-128, May 15, 1995).
BACKGROUND
------------------------------------------------------------ Letter :1
State annually receives over $400 million in appropriated funds for
buying and maintaining buildings abroad. It also has legislative
authority to sell its real estate and use the proceeds to buy or
improve other real estate and furnishings without further
congressional approval. State's Office of Foreign Buildings
Operations (FBO) is responsible for establishing and overseeing
policies and procedures for State's real property, including
approving the disposition of excess, underutilized, or uneconomical
properties. These responsibilities are carried out in cooperation
with the embassies.
RESULTS IN BRIEF
------------------------------------------------------------ Letter :2
As of October 1995, State had a list of over 100 properties for
potential sale valued at $467 million. However, we identified other
properties worth millions of dollars not on the list that are
potentially excess to State's needs or have a questionable value and
are often expensive to maintain.
FBO has not developed a systematic process for identifying and
disposing of excess property. As a result, FBO and embassies are
sometimes unable to expeditiously (1) reach agreement on properties
to sell, (2) move forward on sales, and (3) determine the use of
proceeds. State officials told us that host government sensitivities
and other factors must be weighed against the economic benefits of
selling property. Resolving these considerations can delay potential
sales for years.
FBO sold almost $53 million in real estate during fiscal year 1995.
However, it did not (1) routinely use the sales proceeds for State's
highest priority real property needs, (2) account separately for the
use of the sales proceeds, or (3) use the proceeds to offset its
appropriation request for such needs. U.S. embassies involved in
sales are usually given first priority in using sales proceeds. FBO
believes that embassies will not cooperate in identifying excess
properties unless the embassy receives first consideration on how to
use the proceeds. How the proceeds are used is not justified and
funded through the regular appropriation process.
Because of the embassies' strong interests in the sale of their real
estate and the use of the sales proceeds, as well as the difficulties
FBO and the embassies have in resolving disputes, we believe that the
Secretary of State should appoint an independent panel to decide
which properties should be sold. The reasons for retaining any
property should be weighed against the financial interests of the
State Department and the U.S. government.
ADDITIONAL PROPERTY COULD BE
LISTED FOR POTENTIAL SALE
------------------------------------------------------------ Letter :3
From 1990 to 1995, State made real estate sales totaling $133
million, including $48.8 million from the forced sale of property and
property rights in Singapore because of road construction.\2
If you exclude the Singapore transaction in 1991, sales averaged less
than $4 million annually from 1990 to 1993. Real property sales
increased to $16 million in 1994 and $53 million in 1995, but a
significant amount of property has yet to be sold from FBO's list of
properties available for disposal. Both FBO's October 1994 list and
a second list submitted to the Office of Management and Budget in
1995 had about 100 properties listed for sale. Properties on the
1994 list were valued at $250 million. One year later, FBO added
high-value properties in Manila, Singapore, Paris, and Bangkok to its
list, bringing the total value of properties available for sale to
$474 million. About one-third of the properties on the 1995 list
were estimated to sell for $1 million or more and accounted for over
90 percent of the anticipated revenue. (See app. I for the list of
properties.) In addition, State holds other property that it could
potentially sell that was not on these lists. These properties are
worth millions of dollars and include
-- properties that have been retained at closed posts, including
Zanzibar, Tanzania, and Alexandria, Egypt;
-- properties that are vacant, unneeded, or unsuitable for the
purposes for which they were acquired, including some in Dakar,
Senegal, and Rabat, Morocco; and
-- high-value properties that are oversized or not needed in
Hamilton, Bermuda; Buenos Aires, Argentina; Prague, Czech
Republic; and Budapest, Hungary.
In addition, several of these unsold properties continue to incur
high operation and maintenance costs. For example, in 1993, the
embassy in Buenos Aires reported operating costs on the above
property had doubled to almost $500,000 and major maintenance costs
had risen to about $1 million. (See apps. II through IV for a
detailed discussion of the above properties.)
--------------------
\2 Sales normally occur because State determines that the property is
no longer needed, but the Singapore sales were forced because of road
construction by the host government. The proceeds were largely used
for replacement property.
NO SYSTEMATIC PROCESS TO
IDENTIFY AND DISPOSE OF EXCESS
PROPERTY
------------------------------------------------------------ Letter :4
State has no systematic process to identify excess properties and to
dispose of them. The Foreign Affairs Manual (6 FAM 782.1) requires
each post to periodically identify and report on properties that are
(1) excess to post requirements, (2) not being fully utilized, or (3)
uneconomical to retain. However, embassies are not required to
annually certify that they complied with 6 FAM 782.1. Further, FBO
officials could provide no evidence embassies submitted excess
property reports pursuant to this provision. As the single real
property manager for nonmilitary U.S. government property overseas,
FBO has authority to dispose of properties that become surplus,
underutilized, or uneconomical (6 FAM 713.1) and to determine the use
of sales proceeds (1 FAM 215). In practice, FBO does not normally
proceed with a sale unless the embassy agrees, and it tries to reach
agreements with the embassies on the sale of property and the use of
sales proceeds.
According to FBO officials, property, such as that on the October
1994 list, is identified for sale by the embassies, FBO officials,
State's Inspector General, and ad hoc requests to the embassies by
FBO. However, embassies lack incentives to identify, report on, and
sell excess or underutilized property unless they can use the
proceeds for their own needs. Further, when embassies sell property,
it creates additional work for them. FBO officials' contend that the
totality of such actions constitutes a system for identifying real
estate that should be sold. We do not believe that these actions
constitute an organized system for identifying these properties. Our
review showed that embassies have held unneeded property for years
without an intended purpose, and in some cases, they do not know why
the property was ever bought. For example, a lot in Burma, purchased
in 1948 for an unknown purpose, is being used to store shipping
containers.
In some cases, the embassies and FBO disagree on selling identified
property. We found several cases where embassies and FBO have had
protracted and costly disagreements regarding the use or sale of
property and use of potential sales proceeds. In Brasilia, Brazil,
the embassy and FBO had a standoff for over 2-1/2 years over whether
(1) to sell vacant lots, which were bought in the early 1960s, and
use the proceeds to renovate a 29-unit apartment building or (2) to
sell an apartment building and other property and use the proceeds to
build residences on the vacant lots. The embassy emphasized that the
apartment building is in an extremely poor location. Also, according
to FBO officials, the lots are located in the best parts of Brasilia,
and there is a stigma attached to living in apartments in Brasilia.
FBO indicated that it was cheaper to renovate the apartment building
than to build private residences on the vacant lots. Further, legal
restrictions prohibit the embassy from constructing apartments on the
vacant land. During the time of this dispute, the embassy spent
$580,000 annually to lease housing while the 29 apartments remained
vacant. (See app. V.)
An FBO policy specifies that unresolved disputes will be submitted to
the Assistant Secretary for Administration for further review and
discussion with senior State management. However, disputes sometimes
drag on for years. Of the cases that we reviewed, the Assistant
Secretary was involved only in the Brasilia housing dispute, and then
only after the dispute had been ongoing for 2-1/2 years.
We believe there should be a standard procedure whereby the embassies
and FBO, at least annually, formally present their positions to
another authority. This would help mitigate the conflicting
interests of the State organizations involved and the difficulties
they have sometimes in expeditiously reaching an agreement on the
sale of property and the use of proceeds. It could also help
alleviate the inherent reluctance to forward matters to a higher
level for decision.
FBO HAS NO SYSTEM TO ACCOUNT
FOR AND ENSURE THAT PROCEEDS GO
TO MOST URGENT NEEDS
------------------------------------------------------------ Letter :5
FBO has not developed a procedure for routinely using sales proceeds
to meet prioritized worldwide requirements. As an incentive for
embassies to agree to a sale, FBO normally gives embassies that sell
property first consideration when determining the use of sales
proceeds. These uses are usually not justified in the annual
congressional budget. FBO evaluates the legitimacy and economic
soundness of each proposal, but it does not routinely weigh the
proposal against the needs of other embassies.
We did find a few cases where FBO worked with the embassies to
identify uses for the proceeds, rather than redirect the proceeds to
other countries with greater need. For example, after the consulate
in Lyon, France, closed in June 1992, the consul residence was sold
in April 1995 for $613,000. In May 1992, the embassy in Paris
requested to use the sales proceeds. Initially, FBO indicated that
the proceeds should be made available for use in other countries, but
the embassy objected, and FBO has been working with the embassy since
1994 to identify ways to use the proceeds in-country.
For any sales proceeds that will not be used in the country where the
sale occurred, FBO's policy is to use them to buy property in
countries with high lease costs. According to FBO officials, they
have developed a list of countries where leasehold costs are high,
expected to rise, and offer optimum investment opportunities. Even
though this appears to be a move in the right direction, FBO did not
provide us with its plan for using proceeds to meet this objective.
FBO officials maintain that they need the flexibility to use the
proceeds for other purposes.
In contrast to FBO's case-by-case approach to the use of sales
proceeds, FBO determines critical construction and maintenance needs
at posts and establishes funding priorities for the use of
appropriated funds. For example, all posts are evaluated against
established criteria in preparation for the 5-year budget.
Furthermore, embassies' annual requests for maintenance funds for
special projects are weighted and ranked against requests from all
other posts, and those with the highest rankings are generally
funded.
FBO officials said they cannot use the same approach for sales
proceeds because the sales process is uncertain and they need
flexibility in using the funds. Our review showed that through
fiscal year 1991, State estimated the potential sales proceeds and
included them as offsets to its appropriation requests. According to
FBO, it does not do this now because of the long time required for
developing budget estimates, the volatile nature of overseas real
estate markets, and the complexities of marketing high-value
properties. Even though State has the authority to retain proceeds
from real estate sales, and sales proceeds are uncertain, FBO and
embassies are using proceeds for real property purposes not justified
and funded through the regular appropriation process. This ad hoc
process essentially creates an off-budget fund.
According to FBO documents, of the $16.3 million in fiscal year 1994
sales, $6.3 million, or about 39 percent of the proceeds, were
designated for use in the country where the sales occurred. About $2
million of the $6.3 million were to be used for replacement property
and $4.3 million for other kinds of construction. Of the remaining
61 percent, 35 percent was made available for use in other countries,
and 26 percent had no specific use designated.
Although State subsequently reports to the Congress on the use of
sales proceeds, the reliability of the information is questionable
because proceeds are commingled with appropriated funds and
expenditures from sales proceeds cannot be distinguished from other
funds. Consequently, FBO attributes the use of sales proceeds to
certain projects. FBO officials are considering the feasibility of
separately accounting for sales proceeds to better manage and program
them.
RECOMMENDATIONS
------------------------------------------------------------ Letter :6
The current process State uses to identify and sell unneeded real
estate has not been effective, mainly because of parochial interests
among various parties. As a result, State has a large inventory of
excess real estate. In light of (1) the revenues that could be
earned from the sales of high value property, (2) the cost to the
U.S. government to maintain excess properties, and (3) the likely
increase in excess properties that will result from announced post
closings, we recommend that the Secretary of State establish an
independent panel to make recommendations regarding the sale of
excess real estate to reduce the current inventory of property. In
establishing this panel, the Secretary should consider appointing
representatives from the Office of the Inspector General and the
Bureau of Finance and Management Policy as well as private sector
representatives with overseas real estate experience. Including
these representatives could help ensure that the panel's actions
reflect the financial needs of the Department of State and the
interests of the taxpayer.
Further, to provide a routine process for expeditiously resolving
disagreements between FBO and the embassies, we recommend that the
Secretary require FBO and the embassies to report annually to the
Under Secretary for Management on all properties identified as excess
where FBO and the embassies have not agreed on whether to retain or
sell such properties. As part of the process, the Secretary should
require the embassies to certify annually that they have (1) reviewed
their property holdings to identify properties that are excess to
embassy requirements, not being fully utilized, or uneconomical to
retain and (2) reported any excess property to FBO.
We also recommend that the Secretary of State
-- include estimated receipts from real estate sales in the annual
congressional budget request;
-- establish a formal process for approving and documenting the use
of sales proceeds and require that their use for other than
justified replacement property be weighed against critically
analyzed worldwide requirements; and
-- improve the internal financial controls to better document and
account for the receipts and expenditures of sales proceeds and
provide a sound basis for reporting to the Congress on the
receipt and use of sales proceeds. Creating a separate account
for sales proceeds should be the first step.
AGENCY COMMENTS AND OUR
EVALUATION
------------------------------------------------------------ Letter :7
In commenting on a draft of this report, State agreed with the thrust
of the report's findings, and said it had taken action to manage its
real estate holdings. However, State did not directly address our
recommendations.
As we noted throughout the report, State's actions to date are steps
in the right direction. Despite these improvements, State still does
not have an efficient system for identifying and disposing of excess
real estate. State's lack of standard operating procedures to fully
document the real estate review and decision-making process and
account for and report on the use of funds are weaknesses that must
be addressed. We believe that our recommendations will help correct
these deficiencies.
State indicated that it is in the process of selling some of the
properties listed in appendixes II through V; however, it continues
to rationalize its retention of other properties without providing
evidence that it considered budget realities in doing so. We believe
that the tenor of State's comments reenforce our position that an
independent panel is needed to decide what real estate should be sold
based on consideration of all pertinent factors. Finally, based on
State's comments, we requested further information on properties in
Hamilton and Bermuda. In our view, State's backup data provided
additional grounds upon which to question retaining the properties.
The Department of State's comments, along with our analysis, are
included in their entirety in appendix VI.
MATTER FOR CONGRESSIONAL
CONSIDERATION
------------------------------------------------------------ Letter :8
Because the Department of State has not indicated support for our
recommendations intended to better identify and dispose of excess
property, and account for sales proceeds, the Congress may wish to
direct State to take action to implement them.
SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :9
We conducted our work primarily at the headquarters of State's FBO.
We interviewed State personnel and reviewed the files relating to
real estate for selected countries. We used reports by State's
Inspector General as a base for selecting a number of the cases we
reviewed. Complete information on all the cases we reviewed was not
available at State headquarters, making it difficult to substantiate
certain facts. Also, FBO officials would not give us access to some
files for locations where there were ongoing considerations to sell
property. We believe that these limitations have not materially
affected our conclusions and recommendations, but they may have
affected our ability to review other problem cases.
We conducted our work from October 1994 to February 1996 in
accordance with generally accepted government auditing standards.
We are sending copies of this report to other interested
congressional committees, the Secretary of State, and the Director of
the Office of Management and Budget. We also will make copies
available to others on request.
Please contact me at (202) 512-4128 if you or your staff have any
questions concerning this report. The major contributors to this
report are listed in appendix VII.
Benjamin F. Nelson, Director
International Relations and Trade Issues
List of Requesters
The Honorable Judd Gregg
Chairman, Subcommittee on Commerce,
Justice, State, the Judiciary, and Related Agencies
Committee on Appropriations
United States Senate
The Honorable Jesse A. Helms
Chairman, Committee on Foreign Relations
United States Senate
The Honorable Harold Rogers
Chairman, Subcommittee on Commerce, Justice,
State, the Judiciary, and Related Agencies
Committee on Appropriations
House of Representatives
The Honorable Benjamin A. Gilman
Chairman, Committee on International
Relations
House of Representatives
The Honorable William H. Zeliff, Jr.
Chairman, Subcommittee on National Security,
International Affairs, and Criminal Justice
Committee on Government Reform and Oversight
House of Representatives
PROPERTIES IDENTIFIED FOR DISPOSAL
VALUED AT OR MORE THAN $1 MILLION
AS OF OCTOBER 1995
=========================================================== Appendix I
Post Property
---------------------------------- ----------------------------------
Aleppo Residence
Alexandria Office building
Amman Ambassador's Residence
Athens Hamilton House
Athens Knox House
Athens Monroe House
Athens Sherman House
Bangkok Bang Pu site
Bangkok Sathorn Road
Beirut New office building site
Berlin Rias Trans site
Bogota Office building
Calcutta 9 Residences
Caracas Chancery
Dhaka GSO compound
Dusseldorf Office building
Dusseldorf Residence
Franfurt Residence
Hamburg Land
Kathmandu Land
Kinshasha Alhadeff Building
Lima Office building compound
London Southwick Place Residence
London Romney House
Manila Bahuio Amb. R&R Residence
Manila Vacant land
Nassau New office building site
New Delhi Residence
Osaka-Kobe Vacant lot
Paris D Building-RAMC
Santiago Office annex
Singapore Marine guard quarters
Singapore Office building
Stuttgart Office building
Tangiers Residence & office building
Tel Aviv Residence
Thessaloniki Office building
Tokoyo Treasury House Residence
Toronto Office building
----------------------------------------------------------------------
Source: FBO.
CLOSED POSTS
========================================================== Appendix II
State holds and maintains some properties where posts have been
closed. Other properties are being marketed. Nineteen additional
closures are planned for 1996 as cost-saving measures. It does not
seem prudent to close posts as cost-saving measures and then continue
to hold and maintain post property at government expense.
-- In Zanzibar, the consulate was closed in 1979, but rather than
selling the consul general residence, the embassy in Tanzania
kept the property and has used it predominantly for recreational
purposes and occasionally for official purposes. In 1987, the
house was renovated at a cost of $108,000. In 1991, the State
Inspector General recommended that the embassy make a
recommendation to the State Department regarding the residence's
disposition. According to the Inspector General, the embassy
spent $20,000 in 1990 for maintenance and personnel costs and
used it 137 nights for official and personal use. The Inspector
General report indicated that the island of Zanzibar has several
adequate hotels that could be used by travelers. It also
questioned the likelihood that the United States would reopen a
post in Zanzibar and therefore need such a residence. The
embassy suggested in 1991 that the residence be retained for at
least
3 more years in anticipation of higher property values.
Meanwhile, the embassy undertook what it termed a "modest"
property refurbishment to enhance the residence's value and its
utility to U.S. personnel on official travel in Zanzibar.
According to Office of Foreign Buildings Operations (FBO),
$23,000 was allotted in 1992 to enhance the value of the
property.
In early 1995, the Inspector General again visited Zanzibar.
According to Inspector General officials, maintenance and salaries
relating to the residence were $32,000 in 1994. The residence was
used 122 nights for recreation and 36 nights for representational
purposes.
-- In Alexandria, Egypt, the consulate general was closed in 1993;
however, State officials retained the consulate general
residence, with an estimated value of over $1 million, in hope
that the post would be reopened. State officials attempted to
justify its retention on economic grounds, such as using it as a
residence for a U.S. Information Agency representative. The
Inspector General questioned such retention as an "apparent lack
of concern for the financial loss being incurred by the U.S.
government." State officials then said that when the ambassador
used the residence, State would save $20,000 in lodging costs
and that the spacious residence is ideal for representational
and trade promotion events.
-- In Tangier, Morocco, in September 1988, State approved closing
of the consulate, but State retained the consulate compound,
which contained a principal officer residence and an office
building. The estimated value of these facilities is greater
than $2 million. Voice of America has been using some of the
facilities. In 1990, the embassy raised the issue of selling
the facilities, but actions to sell the property have evolved
slowly. For example, in July 1992, the embassy submitted its
third request to FBO for guidance. In January 1993, the embassy
informed FBO that its repeated requests over the preceding 9
months for funds to cover the cost of appraisals had not been
answered. It also requested $50,000 to provide custodial
services for these surplus properties. An FBO official told us
that both FBO and the embassy have now informally acknowledged
the need to sell the facilities, and listed them on the October
1994 potential sales list, but they have not made a formal
decision to do so.
VACANT PROPERTIES
========================================================= Appendix III
In September 1993, FBO requested all posts to provide information on
vacant or underutilized land. In response, embassies reported a
number of vacant properties. Some of these properties were acquired
for purposes that never materialized and have been held for a number
of years. They could be candidates for possible sale. Because the
information available to us in Washington is sketchy, we cannot fully
evaluate whether these properties should be sold. However, if they
are retained, the reasons for their retention should be weighed
against an analysis of their potential disposal value.\1
The following property was not being used:
-- In Shanghai, China, State owns 2.6 acres of vacant land having
an estimated value of $4 million. State is trying to obtain
China's concurrence on the use of this property.
-- In Rabat, Morocco, State paid $435,000 for an 8-acre lot in 1988
for an embassy and ambassador residence. The King of Morocco
has used the lot for an orange grove since its purchase. There
are no current plans to build on the property. The embassy also
owns a residence, acquired in 1972, that the security officer
will no longer clear for occupancy. In February 1994, the
Inspector General reported that State should develop a plan to
dispose of its excess property in Morocco. In May 1994, the
embassy reported that it had six properties that were no longer
needed and should be sold, not including the 8-acre lot. In
June 1995, however, the embassy indicated that it was willing to
sell only two of the properties.
-- In Colombo, Sri Lanka, State owns property, which was bought in
1984 to expand the chancery. A warehouse is now being
constructed on the property. State also owned a lot acquired in
1948 for residential use, which was worth several hundred
thousand dollars. This lot was sold recently to pay for the
warehouse.
-- In Dakar, Senegal, State acquired a 3-acre site in 1989 for an
ambassador residence. There are no definitive plans to build
the residence.
-- In Islamabad, Pakistan, State owns a vacant lot next to the
chancery, which the embassy wants to keep for future residential
use, but no plans exist. In the meantime, it provides perimeter
security.
The following property was being used for parking and other purposes:
-- In Seoul, Korea, State owns 3.7 acres, acquired in 1990, that is
worth millions of dollars. It is currently being used for
parking. State is trying to work out a property deal with the
Korean government, involving this and other property.
-- In Port of Spain, Trinidad, State owns 0.14 acres bought in 1987
for an office annex. The office annex was never built, and the
embassy has used the lot for parking.
-- In Praia, Cape Verde, State acquired a lot in 1981 to construct
an ambassador residence. The residence was not built, and the
lot has been used as a tennis court. State also purchased a
residence in 1985 for Marine guards, but the guard detachment
was never assigned to the post. The embassy was willing to sell
the residence, but only if it could use the proceeds. The lot
is on FBO's October 1994 sales list, but the residence is not.
-- In Rangoon, Burma, State owns a 2.4-acre lot, purchased in 1948
for an unknown purpose. The embassy uses the lot for storing
shipping containers. According to an FBO official, FBO and the
embassy are considering the lot for a warehouse, but
construction money has not been authorized for the project.
The following property was not vacant, but was being leased to others
or not fully utilized:
-- In Dusseldorf, Germany, State owns an office building that it is
not using. In fact, State is leasing it to an architectural
firm. The embassy acknowledged that it is willing to sell the
building, but a formal decision to sell has not been made. A
State official said that the building will be sold when the
lease expires in 1997.
-- In Kinshasa, Zaire, State owns a lot that was intended for
residential units. However, the embassy in Zaire has downsized
and existing residential units are being sold. The lot is
currently being leased to a private company for a satellite
dish. There is no planned use for another 24.7 acres originally
intended for a transmitter site. State has been postponing the
sale of these properties pending the sale of the residential
properties under better market conditions.
The following property is held under long-term leases:\2
-- In Doha, Qatar, State holds two long-term lease properties as
future ambassador residence and embassy sites. There are no
current plans to build these facilities.
-- In Manama, Bahrain, State has two long-term lease properties
that are used for parking and storage. The embassy wants to
build a warehouse on one lot and continue to use the other one
for parking. However, the warehouse has not qualified for
funding during the screening process for use of appropriated
funds. Although the embassy indicates that these lots were
originally acquired for parking, they may not be optimally used
if one can be given up for a warehouse.
--------------------
\1 Our May 1995 report identified undeveloped land valued up to $2.5
million in Nassau, the Bahamas, that had been retained since 1975
without any intended use. State Department: Additional Actions
Needed to Improve Overseas Real Property Management
(GAO/NSIAD-95-128, May 15, 1995).
\2 The embassies also reported two vacant properties that are not
under State's control. In Dakar, Senegal, the U.S. Agency for
International Development purchased a 35,000-square foot lot in 1985
for $500,000 for an office building. There are no plans to construct
the office building. When we inquired, an Agency official said the
property will be sold. In St. Andrews, Grenada, the U.S.
Information Agency owns 132 acres of unused property, purchased in
1987 for a relay station, which was later canceled.
UNIQUE PROPERTIES
========================================================== Appendix IV
State owns several high-value properties that are unique because of
their size, yet have a questionable use. These properties are
retained for various reasons, such as historical or political
significance or a desire for better market conditions.
-- In Hamilton, Bermuda, State owns an expensive-to-maintain
residence, known as Chelston, for the consul general. In April
1994, the post estimated that the property was worth over $12
million. An FBO survey in February 1993 disclosed that the
residence needed $240,000 in major repairs. The main house is
nearly 10,000 square feet and is situated on a 14-acre estate
with a beach house. State's Inspector General has repeatedly
recommended selling the property. In a September 1993 report,
it stated that "at a time of continual budget constraints, the
Department cannot afford the luxury of maintaining this
ostentatious piece of property." Annual operational and
maintenance costs for this one residence are over $100,000.
Post officials were instrumental in getting President Bush to
intervene against selling the property in 1991. According to
FBO officials, the Bermuda government opposes the sale of the
property.
-- In Buenos Aires, Argentina, State has maintained a 43,000-square
foot mansion as an ambassador residence since 1929. Estimates
of its value vary widely and range up to $20 million. Annual
operating costs are about $500,000. The issue of selling the
property dates back more than 20 years. As far back as 1969, we
recommended disposing of the residence and replacing it with a
more appropriate house. The embassy has historically opposed
selling the residence, indicating that it stands as a symbol of
the U.S. presence in Argentina. Argentine officials have also
opposed selling the property. After a delegation of
congressional and State officials visited Argentina in December
1993, State announced that it would retain and restore the
residence.
In September 1995, the Inspector General reported that the ambassador
has enlisted the local American business community to donate funds
for gradually renovating the furnishings and interior. Further,
State funding of $5 million to $6 million will be required to repair
the house and equipment, and operating costs will require additional
funding. According to the Inspector General, "The residence will
continue to represent a major expense which the inspectors doubt can
be justified indefinitely if budgets continue to shrink."
-- In Prague, Czech Republic, State owns a 42,800-square foot
ambassador residence valued at several million dollars, which it
has retained for over
2 years after a decision was made to sell it, waiting for an
undefined market improvement.
-- In Budapest, Hungary, State owns a house and property, with an
estimated value of over $1 million, which is used for occasional
representational functions, recreational purposes, and Marine
security guard housing. This property, known as the VAR, is
stated to have historical significance to Hungary. Some
facilities were reportedly built in 1687. In 1990, the State
Inspector General reported that this facility was grossly
underutilized. State officials indicated that the most logical
holder of the property would be the Hungarian government because
of the property's historical significance. They further
indicated that a possible solution would be to trade the
property for other property that the embassy now leases.
PROTRACTED EMBASSY AND FBO
DISCUSSIONS
=========================================================== Appendix V
A major difficulty in disposing of overseas properties is the
frequent disagreements between the embassies and FBO over whether to
sell properties and how to use the proceeds. These disagreements
have been protracted and costly.
-- In Brasilia, Brazil, the embassy and FBO had a standoff for over
2-1/2 years over whether (1) to sell vacant lots, which were
bought in the early 1960s, and use the proceeds to renovate a
29-unit apartment building or (2) to sell an apartment building
and other property and use the proceeds to build residences on
the vacant lots. The embassy emphasized that the apartment
building is in an extremely poor location. Also, according to
FBO officials, the lots are located in the best parts of
Brasilia, and there is a stigma attached to living in apartments
in Brasilia. FBO indicated that it was cheaper to renovate the
apartment building than to build private residences on the
vacant lots. Further, legal restrictions prohibit the embassy
from building apartments on the vacant land. During the time of
this dispute, the embassy spent $580,000 annually to lease
housing while the 29 apartments remained vacant.
-- In Calcutta, India, an FBO study recommended in 1991 that the
embassy sell a 9-unit apartment building. However, the embassy
wanted to sell a 6-unit apartment building rather than the
9-unit building. The 9-unit building was worth several million
dollars more than the 6-unit building. According to FBO
information, both buildings were underutilized and could have
been sold except that the limited post staff did not want to
handle the sale of both units at the same time. In 1993, when
FBO agreed to the sale of the 6-unit building, only two
residents occupied the 9-unit building. The 9-unit building was
recently sold for $7.7 million. By selling the less valuable
property first FBO did not have the use of several million
dollars for over
2 years.
-- In 1990, the Inspector General reported that State should review
the need for all State-owned property in Budapest and dispose of
sites that were not needed. FBO did an asset management study
and recommended selling four vacant properties. These unused
properties are additional to the underutilized VAR property
discussed in appendix IV. FBO and the embassy could not agree
on which properties would be sold or how the prospective sales
proceeds would be used. As of May 1995, only one property was
being marketed. The embassy indicated that it was willing to
sell two other vacant properties but not until the one currently
being marketed was sold. An FBO official indicated that the
embassy was unwilling to sell all the properties before it had
agreement from FBO that it could use the proceeds. The fourth
property is a site that was purchased in 1989 for $1.1 million
for construction of a new office building. There are no plans
to construct the office building, but FBO and the embassy cannot
agree upon the sale of the site because the embassy wants to
build residences on the site.
-- In Kathmandu, Nepal, the embassy has retained excess property,
estimated to be worth several million dollars, for over 5 years
after the Inspector General recommended that the embassy develop
a long-term plan to consolidate embassy activities and sell
excess property. It took years for the embassy and FBO to reach
agreement on consolidating embassy activities and selling the
excess property. A decision, in principle, to sell the property
was made in May 1995.
-- In Stockholm, Sweden, over 6 years elapsed between the embassy's
request to sell two apartments valued about $175,000 and the
decision to sell the property. During this period the embassy
and FBO could not agree on how the proceeds would be used.
(See figure in printed edition.)Appendix VI
COMMENTS FROM THE DEPARTMENT OF
STATE
=========================================================== Appendix V
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
(See figure in printed edition.)
The following are GAO's comments on the Department of State's letter
dated January 26, 1996.
GAO COMMENTS
1. We recognized State's actions to improve the management of its
real estate function in previous reviews. This progress was the key
reason for the removal of property and maintenance management from
both GAO's and the Office of Management and Budget's high risk lists.
At the same time, we noted that State needed to take further
action.\1
2. State did not provide evidence during our review that it had
established a vigorous program to identify excess and underutilized
properties throughout the world for possible sale. As indicated in
the report, State's actions consisted of unrelated and uncoordinated
actions by the embassies, FBO officials, State's Inspector General,
and ad hoc requests to the embassies by FBO. Consequently, embassies
have held unneeded property for years without an intended purpose.
3. State does not routinely weigh proposed uses of sales proceeds at
an embassy against the needs of other embassies, such as it does for
certain uses of its appropriated funds. State also did not provide
for our review full information on its ranking of posts for reducing
leasehold costs because, as indicated in the report, State officials
maintain that they need the flexibility to use sales proceeds for
other purposes.
4. State's consensus mode of operation and the asserted effects on
diplomatic relations of selling real estate, in our view, are at the
heart of State's difficulties in selling excess or underutilized real
estate. That is why we believe that an independent view should be
brought to bear on these difficult decisions to ensure that all
pertinent factors are objectively weighed. In the cases that we
reviewed, it was not evident that disagreements between the
Department officials and the embassies were timely referred to higher
management levels and decisions expeditiously made.
5. We noted the uncertainties in offsetting anticipated real estate
proceeds against State's budget request. However, State essentially
treats sales proceeds as an off-budget fund that it uses for items
additional to those in the budget. For example, under the current
procedures, State would use the $53 million in fiscal year 1995 sales
proceeds for real estate matters not justified in the budget.
6. We requested additional information from State on the Hamilton
property to substantiate its assertion that it was a gift from the
Bermuda government and that the Bermudian government was opposed to
the sale. The information provided indicated that the property was
originally owned by a U.S. citizen. Upon his death, the trustees
passed ownership of the property to the Internal Revenue Service in
payment of back taxes and State, through discussions with the
Bermudian government, acquired the property. State was unable to
provide documentation from the Bermudian government opposing the
sale. State, however, provided a September 1994 embassy cable
generated after a luncheon meeting with Bermuda's Premier where he
expressed opposition to the sale. The cable goes on to say that with
the Premier's approval, the property could be sold only to a
Bermudian, but would likely generate less than its current value.
The fact remains that sale of the property would allow State to
reallocate millions of dollars in sales proceeds, and eliminate the
annual maintenance cost of $100,000, as well as the costs of major
repairs.
7. The decision to retain the property in Buenos Aires dates back to
1993. Given the high value of the property, and today's environment
of downsizing and fiscal restraint, it would be worth revisiting.
8. The files contained no information on what it cost to maintain
the property in Budapest. State should strongly consider giving this
historical property to the Hungarian government.
9. State commented that the property in Zanzibar could be sold were
it not for the political considerations. The independent panel we
recommended would weigh the political factors against the current
cost of renovating and maintaining this recreational property.
10. State did not provide documentation supporting the frequency of
the ambassador's visits to Alexandria. According to the
documentation provided, the house, occupied by a representative of
the U.S. Information Agency, was used to host 14 mostly academic and
cultural events in 1995. The July 4th party was the only event
listed as given by the ambassador. The other events listed did not
specifically state whether or not the ambassador was in attendance.
11. We deleted the Stuttgart example based on State's comments.
--------------------
\1 State Department: Additional Actions Needed to Improve Overseas
Real Property Management(GAO/NSIAD-95-128, May 15, 1995).
MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix VII
NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C.
Jess Ford
Diana Glod
Roy Hutchens
Frederick Barrett
Edward Kennedy
Olivia Parker
*** End of document. ***