How Nonprofits Could Benefit from the Fire Sale
The U.S. General Services Administration (GSA) is preparing to offload hundreds of federally owned properties, including some historic and high-profile assets. The government’s rationale is clear: these properties are “not core to government operations” and represent billions of dollars in unfunded capital liabilities. While the sale of these properties reflects a push for cost-cutting and a more efficient use of federal resources, the ultimate economic and social value of this initiative depends on who acquires the properties and how they are used.
As someone who has written about government property sales before, I see two key takeaways from this moment: (1) tax-exempt entities are uniquely positioned to repurpose these properties in ways that generate more social and economic value than private ownership would, and (2) if the government insists on selling, economic efficiency demands that properties go to their highest and best use—something that is far from guaranteed in a sale process focused on speed and revenue maximization.
Tax-Exempt Entities: The Ideal Buyers?
One underappreciated aspect of government property sales is the opportunity they create for tax-exempt entities, including state and local governments, educational institutions, and nonprofits, to acquire real estate assets that they can use more efficiently than the federal government.
But historically, government properties do not always find their way to the private sector. The GSA disposal process prioritizes other federal agencies first, then state and local governments, and only after that are properties opened up for private sale. In theory, this should create opportunities for municipalities, universities, and nonprofit organizations to acquire assets at a discount and use them more efficiently than the federal government ever could. Yet, this isn’t always how it plays out.
As I’ve written before, local governments often struggle to navigate the bureaucratic hurdles necessary to claim these properties, and as a result, assets that could be transformed into affordable housing, educational institutions, or community spaces instead end up in the hands of private developers. This is particularly troubling because tax-exempt entities—unconstrained by the profit motives of private investors—often place greater long-term value on the public and economic benefits of repurposing these properties.
For instance, I wrote (now 11 years ago) about this very process. And my research demonstrated along similar lines how state and local governments struggle with maintaining their public capital infrastructure. Take, for example, school districts, struggling with population shifts and rising maintenance costs, that have been forced to sell off historic school buildings. The sale of these properties to private owners often leads to underutilization, legal disputes over zoning, and inefficient redevelopment that fails to meet the community’s needs. If state and local governments had prioritized acquiring and repurposing these properties for educational or civic uses, we might have seen a more economically sound and socially beneficial outcome. The same risk applies to the current federal property sale: if these assets fall into private hands without consideration for their highest and best use, the long-term economic and social benefits will be lost.
But the GSA’s standard disposal process does offer some preference to state and local governments through public benefit conveyances (PBCs)—where properties can be transferred at a discounted price (sometimes even for free) if they are used for specific public purposes. However, this mechanism is often underutilized due to bureaucratic hurdles and limited awareness. As my research suggests, state and local governments should prioritize these acquisitions as a strategy for addressing infrastructure challenges rather than developing new facilities from scratch.
The Pitfall of Short-Term Cost Cutting
From a law and economics perspective, public real estate assets have significant long-term value that may be undervalued in a direct sale. The decision to liquidate assets assumes that these properties are a financial burden rather than a potential investment. However, if repurposed effectively, these assets could generate long-term economic and social benefits—such as job creation, community revitalization, and increased accessibility to public services.
My analysis of government property sales in Kentucky underscores this tension. In some cases, selling surplus properties to private entities resulted in long-term legal and financial challenges, such as zoning conflicts and increased tax burdens that undermined the efficiency gains sought by the sale. Similar risks exist in the federal property sale process, particularly if properties are sold to private investors who fail to develop them in ways that align with local economic needs.
Above all, in its strategy to sell federal properties, the government is effectively admitting failure in its long-term real estate strategy. Instead of asking how to better manage and utilize these assets, policymakers are resorting to liquidation—an approach that is, at best, an admission of mismanagement and, at worst, a fire sale that will enrich private investors at the public’s expense.
Ensuring Highest and Best Use
While selling off surplus federal properties may appear to be an economically “efficient” move, it is also a short-sighted approach if the properties are not directed toward their highest and best use. If the government is committed to selling real estate assets, maximizing economic efficiency requires that these properties go to their highest and best use—a principle well established in economic theory. This means that instead of simply selling to the highest bidder, the GSA should implement policies that encourage adaptive reuse by tax-exempt entities and local governments that can transform these properties into productive community assets.
To be sure, there is an argument that inefficiently held public assets should be transferred to the private sector for more productive use. But economic efficiency only follows if these properties actually go to their highest and best use—something that is far from guaranteed when the primary goal is merely to reduce the federal footprint. The risk, of course, is that the government undervalues these assets in its rush to dispose of them, offloading valuable properties for less than they are worth in the long run.
Consider the GSA’s approach in this instance. The agency has already removed its initial list of properties slated for sale, suggesting uncertainty in how these assets will be marketed and valued. If history is any guide, this suggests that the government is focused more on streamlining the sale than on maximizing the efficiency of the property’s future use.
Concluding Thoughts
If the federal government is going to offload these properties, there are ways to ensure that they actually enhance economic efficiency rather than simply pad the budget in the short term.
First, the government should prioritize tax-exempt buyers who are better positioned to deliver long-term public value. PBCs, which allow state and local governments to acquire surplus federal properties at a discount, should be streamlined and expanded. Right now, this process is underutilized because of bureaucratic red tape, but the benefits could be substantial—particularly for municipalities struggling with deteriorating infrastructure and rising costs.
Second, the GSA should adopt a more sophisticated pricing model that reflects the long-term economic potential of these properties rather than simply their short-term sale price. The highest bidder is not always the best user, and an auction-based approach risks steering properties toward speculative developers who may sit on the assets rather than develop them productively.
Finally, policymakers should consider public-private partnerships that blend private investment with public interest objectives. If redevelopment is necessary, structuring deals that include mixed-use projects—where a portion of the property remains devoted to public purposes—could preserve some of the value that might otherwise be lost.
Christopher J. Ryan, Jr.
Indiana University Maurer School of Law