DOGE Federal Property Purge May Create Redevelopment Plays in South Florida
The Real Deal Discusses Market Trends with Lee & Associates South Florida Principal, Bert Checa
'DOGE federal property purge may create redevelopment plays in South Florida'
A few government-owned sites are prime for new projects, but cutting nearly 100 leases is much trickier, experts say
Elon Musk’s purge of nationwide federal properties owned and leased by the U.S. government is causing ripples in South Florida’s commercial real estate market.
Already, a handful of federal office buildings in Miami and West Palm Beach could be hitting the market, and a couple of Miami-Dade and Broward leases have been canceled, as Musk’s Department of Government Efficiency, or DOGE, slashes through government real estate.
Other properties, such as the FBI headquarters in Miramar and a 1960s office building in downtown Miami, could be prime targets for redevelopment if the sites end up on the chopping block, experts say.
“In our market, it could create opportunity because oftentimes these government buildings are in prime locations, and usually very well under market value, like some of these old post office buildings are smack in the middle of downtowns where they do not belong anymore,” Ben Jacobson with Fort Lauderdale-based Forman Capital, told The Real Deal. “This made sense 70 years ago, but today you could make a big profit.”
Culling space from nearly 100 leases across more than six dozen properties in the tricounty region is going to be trickier. The feds may run into clauses that require payments to landlords, or face lawsuits from property owners seeking to enforce guarantees against early lease terminations. The government’s decision to vacate buildings also could hit an office market already struggling with economic headwinds. Finding new tenants takes time, especially when the influx of out-of-state companies has slowed.
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DOGE’s ever-evolving list of targeted properties
On Tuesday, DOGE directed the General Services Administration to put 443 “non-core” buildings the government owns in 47 states on the market, which collectively span 80 million square feet. The sell-off will generate about $430 million in annual operating costs savings, according to GSA.
But the list was scrapped and replaced with a “coming soon” message by Wednesday morning.
Led by Musk, the world’s wealthiest person, DOGE is moving swiftly, with its plans and estimated savings ever-changing. The DOGE website’s information has also been plagued by mistakes, The New York Times reported.
In South Florida, the U.S. government owns 10 buildings, including three office buildings and the FBI headquarters in Miramar. The remaining six properties are courthouses and prisons, which reportedly will be left unscathed from the cuts.
Government leases also are on the chopping block. The feds have 90 federal leases across 79 buildings, according to an analysis by TRD. So far, DOGE cuts resulted in two terminated leases in Hollywood and Homestead.
Among the government-owned properties that briefly appeared on the GSA’s list on Tuesday is the historic David W. Dyer Federal Building and U.S. Courthouse in downtown Miami, which is leased to Miami Dade College for another 106 years.
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What can federal buildings sell for?
Exactly how much properties can sell for remains in question. The GSA’s process calls for first offering buildings for public uses such as homeless shelters, then to state and local governments. If they aren’t interested, then the GSA would go to the private sector through a sealed bid or auction.
Although the market for development sites has recovered from the lowest prices in 2023, it’s nowhere near its high point of the two earlier pandemic years.
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Redevelopment of government buildings isn’t the only choice. Developer Asi Cymbal is seeing office-to-residential conversions on the horizon, a niche common in New York that so far hasn’t taken hold in South Florida.
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Bert Checa, of Lee & Associates, has a different viewpoint. The 16-story, 256,400 square-foot Claude Pepper Federal Building in downtown Miami, home to IRS, U.S. Justice Department and Customs and Border Protection offices, as well as the FBI building in Miramar could be repurposed as medical college campuses or other technical schools.
“There’s a couple schools like Lifeline [University] and Kaiser [University] that are looking for other campuses. They typically look for freestanding buildings with parking that are located in a high-density demographic area so they have a higher student pool,” Checa said. “I think those are probably the best sectors to steer these buildings to. I think the [corporate] office use sector already has too much competition.”
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The trouble with leases
Scoring the government as a tenant is good news for landlords. Leases generally require letters of credit through which tenants guarantee payment in case the agreement is terminated prematurely. That payment could be for the remaining term on the lease; a kill fee, allowing the tenant to pay a flat fee to exit the agreement early; or for another pre-agreed upon amount, brokers say.
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