Government Outsourcing on Rise for Firms Like Staubach

There was a period, right when The Staubach Company first started up operations in New York six years ago, when every time founder and football great Roger Staubach would show up in town from Texas, it would be an occasion for a photo op.

Now, however, the Dallas-based company has a strong foothold in New York and no longer needs to rest so squarely on the quarterback s laurels. In September, the tenant rep firm opened up its second New York office and has expanded to 55 employees. In a city where it is difficult for “outside” real estate companies to break in, the firm has even secured business from New York City and New York State itself.

In fact, it is partly Staubach s business with the city and the state that is helping it to thrive here, and branch out beyond tenant rep work. While corporate outsourcing, which has been a factor since the early 1990s, continues to grow, government outsourcing is an increasing trend. Municipalities and the federal government are increasingly following in the footsteps of U.S. companies in outsourcing their real estate needs.

“The municipal side is a fast-growing business for us,” said Peter Hennessey, one of the three managing principals who started Staubach s New York office, coming from Cushman & Wakefield. “We see a lot of potential growth.”

Staubach secured contracts with both the city and the state two years ago, which can be extended indefinitely through renewal clauses. The company handles a 4.5 million square foot New York State portfolio, and a 20 million square foot City of New York portfolio along with CB Richard Ellis. Staubach is also close to signing a contract for an 11 million square foot municipal portfolio in another state, and is trying to secure three other government projects totaling 20 million square feet. Around 8 to 10 percent of the company s business in New York involves this type of work, versus around 6 percent for Staubach as a whole, Hennessey said.

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Hennessey said municipalities are outsourcing real estate functions because of decreasing tax revenues. As a result, many are cutting back on staff costs that occur behind the scenes cutting inter agency services rather than services that the general public sees, like garbage collection or police services.

The feds are getting in the mix, too. According to a recent story in The Wall Street Journal, the federal government is taking a hard look at its real-estate portfolio, which has an estimated value of $335 billion. Many departments and agencies are either selling unused space or forming public-private partnerships to make better use of their properties.

But John Davis, executive managing director of global corporate services at CB Richard Ellis, said there was still a long way to go in terms of getting government on board. “It hasn t been as broad-based as you d expect yet. In the U.K., for example, it s more aggressively done.”

In its work for New York State, Staubach had 75 days last year to complete a strategic study on 4.5 million square feet of space within the city. The goal was to come up with a plan for how space could be used more efficiently. “When we looked the portfolio, we found the rents they were paying were 15 to 18 percent below market rate,” said Hennessey. In order to keep overall costs at a static level, Staubach suggested that the state boost the occupancy of some of its buildings. “That way, when the leases came up for renewal at market rate, they wouldn t be hit with a sudden dramatic cost increase,” he said. The company also suggested a “universal space standard” for employees, which meant spaces for workers that were smaller(“not everyone liked that,” Hennessey said), but more efficient.

Doing deals for government is different than doing leasing deals for companies in the private sector. The government generally wants brokers not only to find them space, but also to provide a broad range of services, from architectural work to project management. By outsourcing the work to a private company they can avoid having to go through time-consuming public processes.