Learn > [REN #318] VA Releases Distressed Property
The U.S. Department of Veterans Affairs (the VA) plans to dispose of more than 400 buildings around the country in the next two years, and it’s possible that real estate investors could benefit from the national sell-off. However, complicated guidelines surrounding the process could make these “deals” less attractive to real estate investors looking to purchase properties with good upside potential.
According to VA secretary David Shulkin, the VA will basically do anything it can to eliminate about 430 buildings located around the country that are presently a drain on VA resources. He said that the VA would not rule out “any exact method” of disposing of a building.
Shulkin and other commercial sector experts have suggested that private sector parties could “reuse” VA properties for development and housing conversions by “retooling” the plumbing or demolishing the existing building.
Federal agencies will get first dibs on all VA properties. If all agencies pass on them, only then would a building be labeled as surplus and made available “for the public good,” such as for a homeless shelter. Failing that, the VA will make the building available to state and local governments, and if no entity bites at that level then the buildings might go up for grabs for investors unless VA demolishes the buildings instead.
So why does the VA have so many vacant buildings? It’s hard to pin down a clear reason. In 2014, NPR reporter Laura Sullivan tried to figure out the facts of the matter, speaking with congressional representatives and government employees at all levels. The result of her research? The federal government is, (no surprise) very unlikely to let anything go once it owns it.
If an agency owns a building and no longer needs the property because it has upgraded, downsized, etc., it cannot just sell the building. The same requirements that the VA has set forth for disposal of its properties (offer it elsewhere at a federal level, try to re-purpose for the “public good,” offer to state and local agencies, then sell), apply across the board. It’s easier and often less expensive for the agency – at least in the short term – to just lock the doors and walk away.
The result? The government does not even know how many properties it actually owns. The VA actually is way ahead of the game by making a list of its vacant and underutilized properties. The agency will actually be breaking new ground if it manages to get those 400-odd properties on the “dispose-of” list off its books!
Shulkin said this past May that the VA had managed to identify about 1,100 buildings that were “either vacant or underutilized,” and added that he was not referring to medical facilities. This is important because it indicates that: 1. The buildings are not necessarily modernized and 2. the VA is not holding medical facilities vacant that it could be using to treat veterans more expeditiously.
With the VA facing a great deal of negative press thanks to mismanaged veterans’ healthcare and the president likely to sign off on legislation that allows VA officials to more easily fire employees who may have contributed to the agency’s poor track record, veterans’ advocates are applauding Shulkin’s idea of selling off the buildings to create additional funds for the VA. At present, the VA spends about $25 million each year maintaining vacant and underutilized properties.
So how can investors take advantage of the potential sell-off? It’s definitely going to take a little legwork. First of all, you’ll need to accept that this process is not going to happen fast. After all, you are at the bottom of a long, slow, often-bogged-down list of procedures. Just identifying potential VA-owned properties in your area and then keeping an eye on them may be the extent of what you can do immediately.
Also, remember that not all of these properties are going to be a good fit for investors (or for anyone for that matter). VA buildings are, on average, 60 years old, and a lot of them are in terrible shape. Back when Sullivan did her report, she discovered that buildings labeled “100 percent occupied” actually had trees growing through the roofs in some cases!
Furthermore, many of the buildings potentially on the chopping block are “historic” and may be protected as a result. In fact, Shulkin estimated that nearly all of the 1,100 buildings on his “vacant or underutilized list” are from the First World War era, and 449 of those were built before the Revolutionary and Civil wars. So you could be looking at complicated back-and-forth work with historical regulations if you want to update or demolish, and expensive upgrades to make the buildings “friendlier” to modern-day residents or tenants.
Shulkin does appear to be working hard to get at least some of these buildings off the books. In fact, he has planned to either destroy or hand back over to the federal government 142 buildings on his list this year. He’s also emphasizing his desire to “act immediately,” so you might see some movement from the VA on this matter sooner than, well, you would in another agency.
Note: those 142 buildings will not likely be entering the open market. They’re just being knocked down or sent elsewhere with the government. Your best bet is probably to keep monitoring the situation if you’re interested in owning one of these buildings, and be patient.