Audit Flags Gaps in Long‑Term Real Estate Planning; City Officials Outline Reforms

The Government Audit & Oversight Committee on July 19 heard a performance audit of the Department of Real Estate from the Budget & Legislative Analyst (BLA), which identified gaps in long‑term planning, asset management, and consistent policies for nonprofit and non‑city uses of public property.

Severn Campbell, presenting the BLA findings, said auditors reviewed leases and transactions and singled out four principal risks: absence of long‑term planning aligned to capital and financial plans, fragmented asset management data across multiple systems, the difficulty of reconciling public policy goals with private market practices in transactions, and inconsistent treatment of nonprofit leases and surplus property. Campbell pointed to examples in the report, including the Parcel P sale process, the Central Shops acquisition and the Twin Peaks gas station lease, and recommended administrative code changes, clearer criteria for highest‑and‑best use and improved reporting via a single facility system of record.

Jennifer Millman of the BLA emphasized that facilities maintenance functions transferred into the real estate division in 2009 are tracked in multiple systems and that a forthcoming facility system of record (then scheduled for 2018) needed expanded reporting features to support portfolio‑level planning. The BLA recommended the real estate director have a defined role in capital planning governance and suggested standards for nonprofit leases.

John Updike, Director of Real Estate, said the department agreed with many recommendations and described actions taken or planned: the facility system of record had gone live earlier that spring and is available as open data; the department planned to pursue an administrative code change to gain a seat on the Capital Planning Committee and formalized MOU processes with Public Works for large development projects such as 1500 Mission. Updike also discussed succession planning and said the transactions unit was expanded from four to five full‑time staffers. He reported internal performance metrics showing city‑owned space costs roughly 37% less than comparable private‑market space and that leased private space incurred rates about 40% of market average, noting the department compares to a city‑wide blended market index rather than Financial District rents.

Supervisors questioned whether the city uses its owned space efficiently, citing examples such as 440 Turk and asking whether large projects like 1500 Mission would reduce private market leases. Updike said consolidation is planned and that 1500 Mission would create opportunities to terminate leases and reorganize city functions; he committed to reporting back with a civic center space plan tied to 1500 Mission.

President London Breed urged that any new nonprofit lease policy account for historically city‑owned community cultural centers and include accountability to ensure leased organizations continue to deliver promised services. The committee filed the audit item and requested continued collaboration between the BLA, the Department of Real Estate and capital planning staff to implement the recommendations.