FHWA Office of Real Estate Services Research Results:
2006 Strategic Vision for the Public Sector Real Estate Profession
August, 2006
II. Vision Statements
To understand the role public sector real estate will be asked to play over the next thirty years and consequently, how the profession should best prepare to meet these challenges, the study team envisioned how external and internal forces will affect the needs of our customers and the resultant impact on public sector real estate.
The purpose of this visioning process was to:
Identify impacts on our customers and the opportunities created by these impacts for public sector real estate.
Establish strategies to position public sector real estate to best address these potential opportunities.
Identify required actions to fully implement these strategies.
For purposes of this analysis, we have defined customers as follows:
The government agencies supported by the public sector real estate function. This broadly includes all public sector organizations responsible for developing infrastructure for the public benefit.
Private sector partners such as engineering firms, large design/build teams, and other private entities who may manage work on behalf of a public sector agency and have a public sector real estate component or engage public sector real estate expertise as part of the team.
The team accomplished our visioning process by:
Identifying potential external trends that may affect our customers.
Identifying potential internal trends that may affect our customers.
Assessing the impact of these external and internal trends on our customers and their business objectives.
Based on the changing needs of our customers, assessing the impact on the role of public sector real estate in supporting these customer needs.
Anticipating any external or internal trends directly affecting public sector real estate and assessing the impact of these trends.
This section provides an overview of the results of the visioning performed by the study team.
To facilitate discussion of the various factors anticipated to impact public sector real estate, these external and internal forces have been categorized into several major trend areas as follows:
- World Trends.
- Community.
- Technology
- Infrastructure Development and Management
- Policy and Politics
- Project Development Process
- Human Capital.
Each of the trends area will be defined and examined broadly and then specifically analyzed for their impact on our customers and consequently to public sector real estate. This impact analysis has been done across two planning horizons, Years 0-10 and Years 11-30. The impact analysis for the first ten years should logically have the most predictability, with the analysis for years 11-30 being much more unpredictable.
A. World Trends
World trends refers to general global trends and their impact our nation and people, and where and how they will live.
1. Summary of Key World Trends
The internet and other improvements in communications as well as the speed and ease of travel, have made the world an increasingly interconnected global village, and this trend will undoubtedly continue. As Glen Hiemstra writes in an excerpt from his letter written in 2049 to the people of 1999 on Futurist.com:5
"Our house is tied into the global net all the time, and the wall screens in the rooms make it easy to see and talk to people anywhere in the world. Two of my best friends live in Korea and Russia. We have not met in person yet, but we talk all the time on the net. Sometimes I also like to just sit and skip around the global cameras, and see what is happening in different places…"
While this shrinking of the globe means it is much easier to share ideas and to work together on global initiatives, it also means that problems in one part of the world can now become worldwide problems much more easily. Epidemics that may have once been isolated to one region, for example, can now spread across continents and across the globe.
The world economy is also going through, and will continue to go through, a tremendous transformation. For more than a century, the United States has had the largest, most productive economy in the world. In 2000, the United States was almost twice the size of the next largest economy, China, and about three times the third largest economy, Japan. The fourth largest economy, India, was a little over one-quarter the size of the economy of the United States.
Major shifts, however, are already under way. Over the last thirty years, economic primacy has begun shifting from the United States and Western Europe to China and India. The wealthier countries of Europe have seen the greatest decline in global Gross Domestic Product (GDP) share, incurring a 4.9 percentage point decline, followed by the United States and Japan, with a decline of about one (1) percentage point each. At the same time, China and India have all experienced continued growth in global GDP share.
This trend is expected to continue over the next 30 years, resulting in a historic transformation of the world economy from uni-polar (meaning the singular economic dominance of the U.S.) to bi-polar with the emergence of China, and then ultimately to a tri-polar economy with the growth of India. Within 15 years, China is expected to become the largest economy in the world. China's economy is then projected to become 50 percent larger than the United States' economy by 2025, and almost double that of the United States by 2035.
As the share of the United States in world GDP falls (from 21 per cent to 18 per cent) and that of India rises (from 6 per cent to 11 per cent in 2025), India emerges as the third pole in the global economy. By 2025, the Indian economy is projected to be about 60 per cent the size of the United States economy. The transformation into a tri-polar economy will be complete by 2035, with the Indian economy only a little smaller than the United States economy but larger than that of Western Europe.6
This dramatic growth in the economies of China and India will multiply demand for public infrastructure and increase competition for scarce resources. Already, the demand for structural steel and other construction materials for Chinese projects have been identified as a significant cost driver for civil projects in the United States. Over the next 30 years, this can only be expected to become more significant as China continues to grow exponentially and is joined in this growth by India, potentially Brazil, and a number of other developing nations.
2. Impact Analysis of World Trends on Public Sector Real Estate: 0 to 10 Years
Projected Impacts
These world trends will have several major impacts on the public sector real estate function. These impacts include:
Significantly increased cost pressure on projects as United States projects compete for and share scarce resources with more countries.
Cost pressure will require more flexible and creative project solutions. Public sector real estate staff will need to play a major role in this process. Real estate staff should engage as early in the project planning process as possible and help as a key team member in designing a cost effective solution, weighing real estate and utility impacts in the comparison of feasible project alternatives.
Given the amount of infrastructure development that will be occurring worldwide, it is essential that public sector real estate be an active contributor to a global knowledge transfer process. The lessons learned through this knowledge transfer must be efficiently communicated and shared with the field workforce to help leverage this intellectual capital as quickly as possible on projects.
Recommended Actions
These impacts will drive a number of required actions on the part of the public sector real estate community. These actions include the following:
It is essential that public sector real estate staff engage as an active partner as early as possible in the project development process to allow for maximizing real estate input into developing a more flexible, cost effective solution.
Development and implementation of enhanced cost estimating methodologies, which accurately predict the real estate and utility cost elements, are essential, given the increased cost pressures likely to be faced by projects. Given that these components are becoming an increasingly larger percentage of project budgets, the criticality of this action is tremendous. The methodologies must incorporate the future value of money, risk identification and mitigation, and specific real estate market trends. The cost estimating methodologies must also have a process for review and adjustment as required on a regular basis through the project planning and design phase. The degree of certainty of the estimate will increase as the project proceeds.
Acquisition processes need to be streamlined to the extent possible to reduce the potential for any delays and the associated cost impacts. Crisp execution of the acquisition process is essential to delivery of the real estate components of the project on budget. It will eliminate any potential cost increases due to delays in starting the construction phase of the project and should minimize labor hours required to deliver the real estate.
Utility relocation efforts should be tightly and carefully managed to ensure that this effort is delivered within budget and does not become a critical path item that impacts overall project schedule and budget.
Technology transfer programs should be continued and expanded as appropriate to facilitate all sharing of technical information and best management practices across real estate practitioners around the globe.
There is a need to educate Local Public Agencies on the relocation assistance program required under the Uniform Act and explain how required legal notices impact the project schedule.
Exhibit II-1 on the page below summarizes the impacts of world trends on public sector real estate for Years 0-10.
Exhibit II-1: Anticipated Impact of World Trends: Years 0 - 10
| Trend/Direction | Impact on Public Sector Real Estate (PSR) | Required Actions |
|---|---|---|
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3. Impact Analysis on Public Sector Real Estate: Years 11 to 30
Projected Impacts
The impacts of world trends on public sector real estate anticipated in Years 11-30 include the following:
Extensive cost pressure on projects from global supply/demand pressures as China passes the United States as the world's largest economy, India becomes an equal player at the table and more developing countries begin to expand their infrastructure.
Extensive cost pressure will further drive the need for flexible, creative project solutions.
The need for greater multi-national project coordination as projects become global in character either as joint development efforts between various countries or as global teams made up of firms from many countries work together to deliver larger projects. These global project teams will also draw on varied expertise from around the world.
Keeping up with cutting-edge techniques and best management practices will require a global orientation. Knowledge sharing on a global basis will be essential to successfully competing and delivering the most flexible, cost effective solutions.
Recommended Actions
The required actions in Years 11 to 30 include the following recommended steps.
Cost estimating methodologies and processes should be refined and continuously updated based on actual historical experience, improvements to technological tools, and changes in recommended techniques and best management practices.
Public sector real estate staff will need to put more emphasis on a broad technical and inter-personal skill base to work effectively on multi-cultural, multi-language global teams.
Proactive technology transfer programs must be implemented to foster sharing of technology/knowledge with the global public sector real estate community.
Exhibit II-2 on the page below summarizes the impacts of world trends on public sector real estate for Years 11-20.
Exhibit II-2: Anticipated Impact of Community Trends: Years 11 - 20
| Trend/Direction | Impact on PSR | Required Actions |
|---|---|---|
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B. Community
Community refers to those trends impacting our nation and its fundamental character. This includes social, cultural, and demographic trends, as well as where and how we live.
1. Summary of Key Community Trends
Much of the growth envisioned over the next thirty years is expected to take place in urban areas and existing suburbs, with people seeking to reduce lengthy commutes. At the same time, it is anticipated that there will be a greater awareness of environmental issues, with infrastructure needing to be designed to better fit into and enhance the character of both the human and natural environment.
Research in the United Kingdom by David Rudlin and Dr. Nicholas Falk of the Urban and Economic Development Group (URBED) analyzed the anticipated influences of social and demographic changes on future housing and how these should affect housing built today. Some of their key findings included:7
More new housing will be built within existing settlements to reduce commuting. This will require models for sustainable urban neighborhoods using traditional urban forms at higher densities in a way that can compete with the attractions of the suburb.
Most new housing looks to the past rather than the future. The research showed that a large segment of the public believes that much of the housing being built today is unsustainable environmentally and ill suited to changing household needs.
Successful developers in the future in the public and private sectors will respond to increasing environmental concerns, changing demographic and social trends, and economic pressures.
Futurist.com predicts, "in the 21st century houses will go ‘back to the future' and rapidly become centers for work, learning, entertainment, and even health care. This will have implications for community planning as profound as did the 20th Century move to the suburbs."8
Glen Hiemstra, in his "Letter Written from the People of 2049 to the People of 1999," continues:9
"What else can I tell you? I really like our house. It's pretty old, built around 2015. The house is built like many other 21st Century houses, with solar orientation and a high-efficiency gas turbine to provide both the heat and the electricity we need. I guess as it got more crowded many people decided to cluster the houses together in small neighborhoods like this, and save more open space for things like our horse pasture. We get added winter heat from the solarium and some of our electricity from the PV (photovoltaic) cells on the roof.
We grow some of our food in the community garden and greenhouse. We use special biotech seeds that help the plants to grow faster and to use less water. I know you had biotech in the old days, but it is a really big business now. Some people say it will be bigger than digital industries soon, but the nano-technology people say they will get there first."
Balancing the projections of significant growth in existing urban and suburban areas is a belief on the part of some experts that there could be substantial migration and hence significant growth in population in rural areas, especially if concerns about terrorism and other security issues make people feel safer in rural or otherwise remote areas.
Likewise, the migration to the South and West is expected to continue. Cities like Las Vegas, Phoenix, Atlanta, and Charlotte are projected to grow substantially through 2035.
Some areas in the Northeast anticipate only marginal increases in population. The population of New York State, for example, is expected to grow only 9.3 percent over the next three decades, and much of this growth is only as a result of a gain of 3.9 million people through net in-migration from abroad.10
Our population will also continue to become more diverse, as well as older. Some anticipated trends in the U.S. population include:11
The U.S. population will grow larger. The Nation's population is projected to increase to 392 million by 2050 -- more than a 50 percent increase from the 1990 population size.
The U.S. population growth rate is slowing. Despite the anticipated large increase in the number of persons in the population, the rate of population growth, referred to as the average annual percent change is projected to decrease during the next six decades by about 50 percent, from 1.10 between 1990 and 1995 to 0.54 between 2040 and 2050. The decrease in the rate of growth is predominantly due to the aging of the population and, consequently, a dramatic increase in the number of deaths. From 2030 to 2050, the United States would grow more slowly than ever before in its history.
The U.S. population will be older. The median age of the population will steadily increase from 35.5 in 2000 to a high of 39.1 in 2035.
The U.S. population is becoming more diverse by race and Hispanic origin. The race and Hispanic-origin distribution of the U.S. population is projected to become more diverse. By 2050, less than 53 percent of the U.S. population will be non-Hispanic White; 16 percent will be Black; 23 percent will be of Hispanic origin; 10 percent will be Asian and Pacific Islander; and about 1 percent will be American Indian, Eskimo, and Aleut. Non-Hispanic Whites, the slowest growing group, are likely to contribute less and less to the total population growth in this country. Although non-Hispanic Whites make up almost 75 percent of the total population, they will contribute only 14 percent of the total population growth between 2010 to 2030 and will contribute nothing to population growth after 2030 because this segment will be experiencing a net decline in size. Conversely, the Hispanic-origin population will be the largest growing group. The Hispanic-origin population will contribute 39 percent of the Nation's population growth from 2000 to 2010, 45 percent from 2010 to 2030, and 60 percent from 2030 to 2050.
Likewise, there is expected to be a continued rise in property values in both urban and rural areas and consequently an increase in housing costs in general. Some additional community trends may also surface and be more predominant in the second half of the planning horizon. For example, if the more dire projections concerning global warming begin to occur, there may be some migration inland, abandoning coastal areas. This could also occur if there continues to be a pattern of severe hurricanes as evidenced by the likely abandonment of some of the most low-lying areas in southern Louisiana in the wake of Hurricane Katrina.
Changes in land use could also lead to new uses and needs for land including wind mill and solar panel farms. These new uses for land will likely introduce new issues for public sector real estate professionals to address.
2. Impact Analysis on Public Sector Real Estate: 0 to 10 Years
Projected Impacts
These community trends are expected to have several critical impacts on the public sector real estate function. These impacts include:
The increasing complexity of the acquisition process as a result of the amount of work being done in urban and suburban areas including the need for more business and residential relocation activity.
Continued increases in the cost of real estate acquisition as a percentage of the project budget due to the amount of work being done in urban areas and the general increase in land values.
Need to shift public real estate resourcing geographically based on where population is increasing the most and thus driving the need for substantial infrastructure development.
Requirements for more real estate work to take place in rural areas if migration away from the cities occurs due to terrorism threats and other concerns, spurring development in previously remote reas.
Public sector real estate staff needs to be more attuned to public concerns. This is a direct result of the public being more engaged in environmental concerns as evidenced, for example, by the houses predicted by Glen Hiemstra with "solar orientation, high-efficiency gas turbines and community gardens with biotech seeds." Likewise, public sector real estate staff needs to be more proactive in defining the real estate elements of solutions that preserve and protect the human and natural environment.
There will be a need for more bi-lingual and multi-lingual staff and greater awareness of multi-cultural issues as a result of the changing demographic mix of the country.
Recommended Actions
These impacts will drive a number of required actions on the part of the public sector real estate community. These actions will include:
There will be an on-going need for highly experienced resources to address the increased complexity of projects, something that will conflict with the loss in the short and intermediate term of experienced resources that will be leaving the profession as the result of the aging of the public sector work force. This will require both public agencies and private sector firms to expedite development and rollout of training programs and look for ways to leverage technology to develop tools to capture and better share intellectual capital.
Earlier involvement in the project development process by public sector real estate staff is critical to allow for the impact of project designs on existing real estate and utilities to be avoided or minimized.
Additional trained and experienced public sector real estate resources will be required in the South and West and in smaller, growing communities that may be impacted by increased migration from urban areas because of terrorism threats or other concerns.
It is essential that the existing public real estate work force and those entering the profession develop Spanish and Asian language skills and greater cultural awareness as the demographics of their communities change.
Recruitment programs for the profession should recognize anticipated changes in demographics and be designed to help recruit new staff who will be representative of the communities they serve.
Public sector real estate staff must strengthen their soft skills in order to enhance working relationships with a sophisticated, better educated, environmentally aware, and more knowledgeable population. These skills are separate from the technical skills required by the public sector real estate staff. Targeted skill areas should include training in:
Communication.
Facilitation.
Negotiation.
Exhibit II-3 summarizes the impacts of community trends on public sector real estate for Years 0-10.
Exhibit II-3: Anticipated Impact of Community Trends: Years 0 - 10
| Trend/Direction | Impact on PSR | Required Actions |
|---|---|---|
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3. Impact Analysis on Public Sector Real Estate: Years 11 to 30
Projected Impacts
The impact on public sector real estate for Years 11 to 30 is expected to involve a continuation and strengthening of the impacts predicted for the first ten years. In addition to those impacts identified above, two new areas of impact will include:
Emergency response and the resulting need to define and institutionalize the concept of reverse condemnation as some land becomes unusable or dangerous to use as the result of natural forces such as global warming. What should or will be the government's role, for example, for property losses resulting from these types of natural events?
Increased costs for healthcare as the population ages, which may impact the funding available for public benefit infrastructure development and improvement. This will put additional cost pressures on project budgets and drive the need for even more creativity on the part of the public real estate function, given that real estate and utility relocation are large elements of the project budget.
Recommended Actions
The required actions in Years 11 to 30 involve a continuation and institutionalization of the actions started in Years 0 to 10. In addition, the following actions will be critical:
There will be a need to enhance any on-going training or continuing education programs to provide for training of staff on new and evolving impacts.
There will be a need to proactively develop, modify, and quickly communicate policies to address new and evolving public sector real estate issues resulting from changes in land use patterns, public projects, and the impact of global warming and natural disasters.
Cultural awareness training and types of language skills must become an essential part of real-estate education course work.
Recruitment processes must ensure that public sector real estate staff is representative of the communities they serve and reflect the changing nature of the demographics of these communities.
Cost estimating processes must be continuously refined to help public sector real estate teams develop creative solutions in response to increasing cost pressures.
Exhibit II-4 on the page below summarizes the impacts of community trends on public sector real estate for Years 11-20.
Exhibit II-4: Anticipated Impact of Community Trends: Years 11 - 20
| Trend/Direction | Impact on PSR | Required Actions |
|---|---|---|
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C. Technology
Technology refers to advancements in information technology and innovation in construction tools and methods.
1. Summary of Key Technology Trends
The advances in technology that will most directly impact public sector real estate can be broadly categorized into three major groups:
Improvements in information management and computer-based analytical tools.
Potential uses of technology to aid in collection of user fees.
On-going evolution of construction techniques.
Each group or trend is described in further detail below.
a. Improvements in information management and computer-based analytical tools.
Some of the more important improvements in the capturing, sharing, management, and analysis of information are:
Growth in mobile computing and ease of access to the internet.
Increased use of global positioning systems (GPS) technology and geographic information systems.
Workflow and collaboration tools.
Growth of the digital enterprise.
Growth of mobile computing and an enhanced availability of the internet.
The number of proven technologies available for communicating and sharing information with one another continues to expand in depth and functionality. There is no reason not to expect this trend to continue. It is reasonable, with the increased capability of mobile computing devices, to expect that soon, high speed access to the internet will be available almost anywhere, thus allowing individuals to easily access information about just about anything from anywhere with portable, inexpensive devices.
Increased use of GPS and GIS technology.
GPS (global positioning) technology will enable more precise locating of real estate, as well as other elements of the human and natural environment. GIS (geographical information) technology will allow real estate professionals and other decision makers to more effectively identify, analyze and assess real estate and other impacts (such as wetlands, protected species, environmental justice) on potential projects. GIS will also facilitate "what if" analysis allowing the real estate impacts to be easily balanced and compared against other human and natural environmental factors among various project alternatives. The Florida Department of Transportation and its resource agency partners, for example, have developed a GIS-based application that performs this type of trade-off analysis. A similar application is currently in the planning stages in Tennessee.
Growth of the Digital Enterprise.
Just as many private sector organizations view data as a critical asset, public sector agencies will increasingly view their design data and other information about their infrastructure as vital tools that aid in managing a project over its entire life cycle. With this trend, the process of how a design is developed will become just as important as the set of plans at the end of the design process is today. The quality of the data will be very important as information is used across multiple phases of the project and beyond. For example, information can be passed to the construction contractor to be used as an input for setting up equipment or as a basis for populating an as built database to be utilized to help maintain the asset.
Workflow and Collaboration Tools.
The increased availability of powerful workflow and collaboration tools helps to facilitate the sharing of information within and across organizations. Two examples of these applications directly relevant to the project development process include:
Project collaboration tools that allow team members to view, share and update design data. These tools allow the various partners on a project team, potentially both internal and external to the organization, such as designers, environment specialists, real estate specialists, and utility relocation specialists a common view of the latest design information at the same time.
A GIS-based repository for utility design and as-built data which allows design information to be maintained and shared between numerous interested stakeholders including utilities, engineering firms, and construction contractors.
Three dimensional and experiential modeling tools that can be utilized to help stakeholders better understand a proposed project and the impact of the proposed project on the surrounding community, including real estate impacts.
b. Potential uses of technology to aid in collection of user fees
Transportation officials in the United States and the United Kingdom are both studying the use of satellites and ground positioning receivers (GPS) to determine and collect user fees for transportation facilities. Under the plans, the current gas tax would be reduced or replaced in favor of a system where satellites would monitor the driving of individuals and charge fees based on use, collecting higher fee for use of facilities at peak times.
In the fall of 2005, the Oregon Department of Transportation began implementing a federally funded road tax pilot project. Twenty vehicles equipped with a GPS receiver will fill up at one of two special gas stations that download mileage information from the GPS device, charge the road tax and refund the amount of the gas tax automatically. Initially, the special black box will not record location data, just total mileage in-state and out-of-state, with the latter mileage being tax-free. 12
c. On-Going Evolution of Construction Techniques
A range of improvements to construction methods and techniques will help to significantly transform the nature and type of infrastructure developed for public benefit. These technology improvements could include among others:
A wider use of techniques to develop man made or synthetic islands. This technology is being developed through the Palm Islands and World projects, which are currently under development off the coast of the United Arab Emirates. The Palm Islands, also referred to as The Palm Dubai and The Palms, are the world's three largest man-made islands and will increase Dubai's shoreline by 120km (72 miles) and create a large number of residential, leisure, and entertainment areas. The World is a series of 223 man-made islands, strategically positioned to form the shape of a map of the world. Located five kilometers off the coast of Dubai, The World will be 3.4 miles in both length and width, covering 60 million square feet, including 10 million square feet of beach.
Tunneling techniques that make the building of underground cities and other infrastructure more practical and cost effective.
Construction techniques that could make the development of cities in space more realistic and cost effective. These types of technologies are currently being deployed and perfected, for example, through the construction of the International Space Station.
2. Impact Analysis on Public Sector Real Estate: 0 to 10 Years
Projected Impacts
These technology trends are expected to have several impacts on the public sector real estate function over the first ten years of the planning cycle. These impacts include:
An opportunity for continued automation of public sector real estate business processes both in the office and on a wider scale in the field through the use of mobile computing and the internet and the increased power and cost effectiveness of Personal Digital Assistants (PDAs) and tablet computers.
Collaboration software and tools allowing team members to more easily work and collaborate with each other will be developed and deployed to help increase the automation of the project development process and allow for more effective sharing of all project data. This will include more effective sharing of real estate related information by real estate staff with project designers and engineers and the increased access by real estate staff to overall project design information.
Greater access to GIS-based planning and decision making tools to support trade-off analyses on project locations and alternatives, which will allow real estate impacts and costs to be better understood in the context of other human and natural environment issues.
Visualization and simulation software will be increasingly used with citizens in the field to help explain the project generally, as well as the specific real estate and utility elements of the project.
There will be a need for public sector real estate staff to be as knowledgeable and informed about the project and on real estate matters as possible since the citizens, because of the ready availability of information through the internet and other technologies, will be very knowledgeable and informed about project issues and their rights.
Recommended Actions
These impacts will drive a number of required actions on the part of the public sector real estate community. These actions will include:
The public sector real estate community should leverage investments in proven technologies to streamline business processes and improve the overall efficiency of the public sector real estate work force. These investments can include:
Automation of activities being performed by field staff.
Implementation of workflow and collaboration tools.
GIS-based repositories for capturing and tracking utility relocation information.
Greater use of visualization and simulation techniques to communicate project ideas and concepts to the public.
Enhanced training should be developed for public sector real estate to improve the overall technological competence of existing and future public sector real estate staff.
Soft skills of public sector real estate staff should be strengthened to allow them to better work with a more knowledgeable and informed public.
Exhibit II-5 summarizes the impacts of technology trends on public sector real estate for Years 0-10.
Exhibit II-5: Anticipated Impact of Technology Trends: Years 0 - 10
| Trend/Direction | Impact on PSR | Required Actions |
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3. Impact Analysis on Public Sector Real Estate: Years 11 to 30
Projected Impacts
The impact on public sector real estate for Years 11 to 30 is expected to involve a continuation and strengthening of the impacts predicted for the first ten years. In addition to those impacts identified above, two new areas of impact will include:
A need to develop new cost estimating approaches that consider the real estate impacts of evolving construction techniques such as the development of underground cities and man made islands.
A need to evolve policies and regulations to address new and evolving real estate issues including potential ownership interests in underground developments and space developments, as well as virtual negotiations with owners.
Recommended Actions
The required actions in Years 11 to 30 involve a continuation and institutionalization of the actions begun in Years 0 to 10. In addition, the following actions will be critical:
Continual investment in technology to improve efficiency.
Continual training of staff in the use of new technology.
Strengthening of soft skills to better work with a much more knowledgeable public.
Refining of cost estimating processes and looking for ways to use new technology to develop creative solutions to reduce cost
Need for a continuing education program that will be able to quickly provide real estate staff with information about the impacts of new and evolving technologies on the public sector real estate function.
Exhibit II-6 on the page below summarizes the impacts of technology trends on public sector real estate for Years 11-30.
Exhibit II-6 Anticipated Impact of Technology Trends: Years 11 - 20
| Trend/Direction | Impact on PSR | Required Actions |
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D. Infrastructure Development and Management
Infrastructure refers to those trends related to the planning, design, development and management of infrastructure for the public benefit.
1. Summary of Key Infrastructure Development and Management Trends
The study team has identified a number of trends related to the design, development, management, and operation of new and existing infrastructure. These trends include:
Graying of infrastructure nationally, resulting in more emphasis by agencies on maintenance of existing infrastructure.
Increased focus on leveraging existing infrastructure to generate revenue.
Development of the NAFTA Corridors.
Growth of the corporate aircraft market.
Increased development of multi-modal and multi-use solutions.
Each of these trends is described in further detail below.
Graying of infrastructure nationally, resulting in more emphasis by agencies on maintenance of existing infrastructure
There is an increasing awareness on the part of policy makers that our infrastructure is aging and that we must consider ways to maintain and extend the life of these assets as opposed to simply building new infrastructure. At the end of this thirty-year planning horizon in 2036, the first components developed in the interstate highway system will be 80 years old. A number of state highway transportation agencies, for example, have recognized this change in mission in their statewide transportation plans. The North Carolina Statewide Transportation Plan, adopted in late 2004, for example for the first time in state history specifically called for increased investments in highway maintenance and modernization. The plan also required a higher level of investment in other strategies designed to increase the capacity of existing infrastructure such as alternative modes of transportation and Intelligent Transportation Systems (ITS).13
Increased focus on leveraging existing infrastructure to generate revenue
Agencies are no longer focused only on the construction of the asset, but are also now looking more at on-going operations and how an asset can be an on-going revenue source for an agency. During the 1990s for example, a number of state transportation agencies made arrangements with telecommunication agencies to allow fiber to be placed in highway right-of-way. In addition, SAFETEA-LU mandates a study on the feasibility of installing fiber optic cabling and wireless communication infrastructure along multi-state interstate system route corridors for improved communications services to rural communities along such corridors. Benefits envisioned by this SAFETEA-LU initiative include:
Economic development.
Intelligent Transportation Systems (ITS).
Improvements to education and health systems.
Likewise, various cities and states are looking at opportunities to lease existing infrastructure to private consortiums to raise funds for other programs and initiatives. The City of Chicago in early 2005 completed negotiating a 99-year lease of the Chicago Skyway toll road with Cintra-Macquarie for $1.83 billion. Cintra-Macquarie Consortium is composed of Cintra Concessiones de Infraestructuras de Transporte, S.A. (Cintra) of Spain and Macquarie Infrastructure Group of Australia. The Cintra-Macquarie Consortium must comply with detailed operating standards to assure safety in operations and high engineering standards during the term of the lease, as well as work within specified toll rate caps. The lease agreement, for example, was designed to ensure that the operator continues to maintain the structural quality of the Skyway for the duration of the lease.
While some citizens and policy makers were eager to see a significant amount of the proceeds from the lease agreement spent immediately, the City of Chicago has developed a plan to carefully allocate the proceeds from the lease arrangement. $875 million is being set aside to establish a $500 million long-term reserve fund and a $375 million mid-term annuity the city can use to smooth the effects of economic cycles and stabilize the need for additional revenues. $100 million will be invested over the next five years to improve quality of life in the city's neighborhoods. Approximately $28 million of this will be used to fund "safety net" programs that will bridge the gap for Chicago's residents most in need. This includes a city homeless program, home heating assistance programs, assistance for the disabled to make home modifications, affordable housing and homeowner programs, job creation and training through re-entry programs for ex-offenders, a new Small Business Development Fund, and programs for children and seniors such as after-school programs, Meals-on-Wheels, and senior satellite centers. The remaining funds will be utilized to pay off $463 million in Skyway debt.14
Independent financial analysis of the lease terms has suggested that the deal is win-win, for both the City of Chicago and Cintra-Macquarie. The City is able to get an infusion of cash to use in the short-term, while Cintra-Macquarie appears to have the potential for a strong positive return on investment over the term of the lease. The initial success of this transaction has spurred interest in other similar transactions. For example, the lease of the Indiana Toll Road was also just finalized to Cintra-Macquarie for $3.85 billion. The State of Indiana plans to use part of the funds from this transaction to finance development of other highway construction projects across the State. Likewise, there are on-going discussions on various alternatives for leasing the New Jersey Turnpike.
The Chicago Skyway and Indiana Toll Roads transactions are far from the exception. There are on-going discussions on various alternatives for leasing the New Jersey Turnpike. Likewise, many new toll facilities under construction around the world are being built by investors under government-administered concessions. Italy privatized its largest state toll business, Autostrade, a few years ago and the Ontario 407 Extended Toll Road (407ETR) in Toronto Canada was privatized after being constructed by the province of Ontario.
Airport operations are in private hands in many of the world's major cities, including London, Rome, Copenhagen, and Frankfurt. While only one airport in the United States, Stewart-Newburgh in New York State, is privately operated, other cities are interested in exploring this idea. Building on the Chicago Skyway transaction, the City of Chicago, for example, is studying leasing Midway Airport to a private operator.15
Development of the NAFTA Corridors
The two priority segments of the NAFTA corridor system in the United States are the I-35 Corridor and the proposed I-69 Corridor, both of which will originate in Laredo, Texas and carry NAFTA freight all the way to the American Midwest. The I-35 Corridor will extend 1,600 miles north to the U.S./Canada border. The proposed I-69 Corridor will also originate in Laredo but will head northeast, serving Houston, Memphis, and Indianapolis, before extending to the U.S./Canada border at Port Huron, Michigan, a total of approximately 2,100 miles. The NAFTA corridors, when fully completed will be some of the largest engineering projects ever undertaken in U.S. history.
The NAFTA corridors will be up to 1,200 feet wide with separate lanes for passenger vehicles (three in each direction) sandwiched between truck lanes (two in each direction). The corridors will also contain six rail lines (three in each direction): two tracks for high-speed passenger rail, two for commuter rail, and two for freight. The third component of the corridor will be a 200-foot-wide utility zone. To accommodate the railways and underground utilities, the corridors will run at grade level and will require extensive bridging at crossovers and intersections. The current estimate is that a typical corridor section will require 146 acres of right-of-way per mile, making the anticipated land consumption for the NAFTA corridors 584,000 acres in Texas alone. Total land consumption in the United States for the NAFTA corridors could exceed 1 million acres. The Texas sections of these corridors (approximately 4,000 miles) alone will cost $145.2 to $183.5 billion, including right-of-way costs estimated at $11.7-$38 billion.16
These NAFTA corridors will be heavily utilized. Traffic projections for the year 2025 estimate 82,100 vehicles per day (including 18,100 trucks) on the busiest section of the I-35 Corridor, and estimates for I-69 traffic are comparable. This volume traffic has the potential to create extensive pollution impacts throughout the corridor.
Growth of the Corporate Aircraft Market
Rising dissatisfaction with commercial service, the need to reach smaller communities efficiently and the expanding alternatives for business travelers are expected to generate years of growth for the corporate aircraft industry.
The introduction of new and relatively inexpensive very light jets (VLJs) later this year could open jet ownership to more fliers. More companies seeking alternatives to commercial airlines also are gravitating toward the increasingly efficient, flexible and affordable options offered by charter air services and fractional jet ownership.
In its aerospace forecast for 2006 to 2017, the FAA reported the number of noncommercial aircraft hours flown is projected to increase by 3.2 percent annually, and much of the projected increase is attributed to increased flying by business and corporate aircraft. Jets are forecasted to account for most of the increase, as jet hours flown are expected to grow an average of 10.2 percent annually over the next 12 years thanks largely to VLJs and increases in fractional ownership.17
Increased development of multi-modal and multi-use solutions
There is also an increased focus on the development of multi-modal and multi-use solutions. Most state transportation plans now recognize the need for developing integrated multi-modal solutions to transportation problems, and there is greater awareness of the importance of integrating transportation solutions with the development of housing, parks, utilities, and other infrastructure. Some of these initiatives include:
Development of light rail in urban/suburban areas, and the integration of these light rail systems in an overall master urban development plan.
Increased use of inter-urban trains for transportation as an alternate to domestic air transportation.
2. Impact Analysis on Public Sector Real Estate: 0 to 10 Years
Projected Impacts
These infrastructure trends will have several important impacts on the public sector real estate function over the next ten years. These impacts include:
There is a need for public sector real estate to actively engage as a partner in developing creative solutions to extend the life of existing assets.
Public sector real estate professionals will need to develop additional property management and business development experience in order to assist with designing and implementing many of the innovative business relationships being proposed with private sector partners.
Public sector real estate professionals will work as part of more multi-modal, multi-agency teams, including in partnership with private sector organizations that may be performing operations and maintenance duties for a particular asset.
Concessionaires will often have limited experience with, and will require education on, the Uniform Act, as well as the need to ensure that rights of the public are protected.
Development of the NAFTA corridors will create substantial right-of-way acquisition and utility relocation work, but this work will be done in many cases through design/build consortiums or concessionaries and will be multi-modal in nature.
Need for skills and capabilities to address a variety of complex project issues in long term leases for public infrastructure such as what can be located in easements, the definition and negotiation of air rights, and mineral rights and the applicability of the Uniform Act to these long term leases.
Recommended Actions
These infrastructure impacts will drive a number of required actions on the part of the public sector real estate community. These actions will include:
Earlier involvement in the project development process to allow real estate issues to be properly addressed in more complex, multi-modal projects.
There is a need for experienced resources to help address the increased complexity in large multi-modal projects and the need for creativity to assist with designing solutions to extend the life of existing assets.
There is a greater need for enhanced training on property management and other related business development skills for public sector real estate staff.
Education programs need to be enhanced to increase the awareness of consortium and concession managers on the Uniform Act and the benefits of fully leveraging the public sector real estate function.
Exhibit II-7 on the following page summarizes the impacts of infrastructure trends on public sector real estate for Years 0-10.
Exhibit II-7: Anticipated Impact of Infrastructure Trends: Years 0 - 10
| Trend/Direction | Impact on PSR | Required Actions |
|---|---|---|
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3. Impact Analysis on Public Sector Real Estate: Years 11 to 30
Projected Impacts
Additional impacts on public sector real estate from infrastructure trends for Years 11 to 30 include:
Growth in the need for public sector real estate services by smaller airports as travel by corporate jet, especially to smaller communities, continues to expand.
Corresponding need to think through and address neighborhood and community issues resulting from the growth of traffic at smaller airports.
Continued growth and expansion of multi-modal transportation solutions driving the need for public sector real estate services in support of development of initiatives such as inter-urban high-speed trains.
Continued need for public resources to execute components of the NAFTA corridors plan.
Recommended Actions
Actions recommended in Years 11 to 30 include:
Focusing on education programs for new customers such as smaller airports and consortiums developing inter-urban trains.
Continuing to emphasize recruitment of new staff to the profession and proactive training programs to meet on-going demands of the NAFTA initiatives and other large projects.
Exhibit II-8 on the page below summarizes the impacts of infrastructure trends on public sector real estate for Years 11-20.
Exhibit II-8: Anticipated Impact of Infrastructure Trends: Years 11 - 20
| Trend/Direction | Impact on PSR |
Required Actions |
|---|---|---|
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5 Hiemstra, Glen. "Letter written in 2049 to the people of 1999", Futurist.com
6 Virmani, Arvind. "India a Giant Economy? Yes, by 2035!"
7 Rudlin, David and Dr Nicholas Falk. "Future influences on housing".
8 "Preparing for the 21st Century", Futurist.com
9 Hiemstra, Glen. "Letter written in 2049 to the people of 1999", Futurist.com
10 "Demographics Projections to 2025", New York State Office of Aging.
11 Cheesman, Jennifer. "National Population Projections", United States Census Bureau.
12 "US, UK Move Toward Per-Mile Driving Tax", Newspaper.com, June 6, 2005.
13 "Statewide Transportation Plan", North Carolina Department of Transportation, September 2004.
14 "Chicago Skyway Handed Over to Cintra-Macquarie After Wiring $1830m”, Tollroads News, January 24, 2005.
15 "Researcher: Only Matter of Time Till Large U.S. Airport Embraces Private Ownership", Chicago Tribune News Service, March 4, 2006
16 Vogel, Richard D. "The NAFTA Corridors: Offshoring U.S. Transportation Jobs to Mexico", Monthly Review, January 2006.
17 Tritto, Christopher, "The Sky is the Limit", St. Louis Business Journal on MSNBC.com.
