There are fundamental differences between commercial and municipal real estate portfolios, says Scott Minnix, director of Houston’s General Services Department.
One of them is that in commercial portfolios, the facility is an asset, one that could generate revenue when the company is ready to move on. Decisions are based on return on investment. Occupancy rate, lease rate, market rate — all those things are very important in commercial facilities. There is therefore an inherent incentive to maintain the asset.
“A city building, like a city hall or a fire station, doesn’t meet that criteria, because it’s meant to be part of the community,” says Minnix. “It’s really not an investment tool, it’s a service tool.” In a library, for example, rent isn’t charged. The library patrons don’t pay a fee. The facility is not making money, but its value is in its service to the community. That library might be the only resource in a neighborhood, playing a critical function in keeping the community safe and engaged.
Because municipal buildings exist to provide a service, there are different factors to measure performance, in chief availability. A fire station in Houston cannot have its HVAC go down. “Keeping that building operating is critical for the life safety of the firefighters, but what they do is so important for the community.” It’s not just about how the facility affects its occupants, but also about how the availability of the facility affects the community at large.
Because municipal buildings don’t generate profit like commercial facilities do, there is often a run-to-failure approach to municipal facilities management. Just enough money will be spent to keep the facility operational, but not enough to let the facility maintain its value. Once the building has been run down to where it is no longer meeting the community’s needs, it’s replaced.
It’s not always a bad model, says Minnix, but it presents challenges for the staff working in the facility as the facility erodes, and challenges for the facility management department, which ends up having to work harder to bandage the facility with limited funds than if a more preventive and predictive approach was taken. Changing the paradigm in Houston so that municipal facilities are treated as assets that should be maintained to optimal operating conditions has been one of Minnix’s main goals during his tenure.
— Naomi Millán
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