A Mid-Career Foray Into Government
Dan Rosenfeld, a self-described former bureaucrat, is one of the few people who can claim to have personally done something to reduce government waste.
A veteran of such prominent private real estate firms as Kilroy Industries, Tishman Speyer Properties Inc. and Cadillac Fairview Corp., Rosenfeld switched to government posts in 1992 for five years of what he calls a “mid-career sabbatical.”
First as a real estate director with the state of California and then as an asset manager for the city of Los Angeles, Rosenfeld focused on consolidating the fragmented real estate operations of both governments to reduce costs. One example of the hurdles he faced: When he joined the state, he found that it had 72 separate office leases in the Los Angeles region alone, with no thought of consolidating those leases into a central location. It also had no inventory of its $8 billion worth of real estate and no system for assessing the performance of those assets.
Having, by his own estimate, spent all of his political capital and accomplished as much as he could reasonably expect to achieve in the two government posts, Rosenfeld returned to the private business world in July as a senior vice president and development director at LaSalle Partners Development Inc. in downtown Los Angeles.
Rosenfeld describes his years in government as both frustrating and fulfilling, exasperating and rewarding. His role in the state’s purchase and rehabilitation of the sadly deteriorated former Broadway department store in the city’s historic core is one of his proudest accomplishments.
But he acknowledges that he ruffled a few feathers along the way, especially among downtown real estate brokers, who would have preferred the state lease space in one of the existing downtown office towers.
Before leaving his city post, Rosenfeld--a Harvard MBA who studied architecture at Yale and holds undergraduate degrees in structural engineering and architecture from Stanford--delivered a memorandum listing 100 ways for the city to improve its management of its real estate holdings.
Q: Why did you leave your city job and return to the private sector?
A: I believe in term limits for bureaucrats. I sincerely believe the privilege of serving the public is the highest honor a citizen can aspire to, but on the other hand, I think the stewardship of public assets should be rotated among qualified managers, preferably with private sector experience.
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Q: Which job was harder, the state or the city?
A: The city was much harder to work in than the state, which seems counterintuitive because the state is a much larger organization, has two legislative bodies compared with only one in the city, and the state has substantial gulfs between north and south, and urban and rural. But the state was a more efficient process.
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Q: Why was the job with the city tougher?
A: The state was easier because the governor has executive power to manage the bureaucracy. When two state departments disagreed on an issue, we could go to the governor’s office, and the disagreement would be resolved around a common position reflecting the will of the administration. But in the city, the department heads really report to nobody, and when two departments disagree, they seem to deteriorate into fratricidal infighting. It’s a fundamental need in the charter reform process to give the mayor some authority over general managers and the city staff.
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Q: What were the major problems you identified in how the state and city managed their real estate?
A: When we started the asset-management program for the state of California, early in the first [Pete] Wilson administration, the state didn’t even have an inventory of what it owned, let alone a strategy for managing that portfolio. If you had a pension fund of $8 billion--which is probably a reasonable estimate of the value of the commercial properties of the state, not including parks and waterways--you would have a computer printout on your desk every morning of every investment you owned, its current return and all kinds of transaction recommendations to enhance its value. The state didn’t have anything like that then, but it does now.
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Q: What were your solutions to those problems?
A: We started a simple program of first inventorying and ultimately consolidating the real estate of first the state and then the city. The key to everything we accomplished was very, very simple. For example, we found in Los Angeles that the state had 72 office leases scattered around the region, averaging about $1.85 per square foot per month. We determined that by consolidating those leases into a single facility, we could eliminate about 15% of the square-footage requirements because every one of those spaces had a reception area, a lunch room, a coffee room, a certain amount of conference rooms and other duplicated space.
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Q: Did you really make progress in changing the way the state and city governments manage their real estate?
A: First of all, it wasn’t just me. There was a team of people brought in by the governor. Over the last three years since I’ve been gone, almost 20 major projects have been completed that we started in the two years we were there. The whole attitude of the state toward real estate has shifted. I think we changed government’s approach to real estate, both state and city, from considering it as an expense to considering it as an asset.
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Q: Why did the state choose to convert the old Broadway department store to office space rather than rent some ready-to-occupy space?
A: After we inventoried the leases in the Los Angeles area, we discovered that the state had an overall requirement for about 400,000 square feet of space. The original, reflexive response in the bureaucracy was to build a building. But we decided first of all to look at existing buildings and second of all to consult with the city as to where it thought that 400,000 square feet could do the most good. When we asked that question of Ed Avila (then chief of the Los Angeles Community Redevelopment Agency), he pointed out his window and said, “The biggest eyesore in downtown Los Angeles is the old Broadway department store.” It had been built in 1913 as a truly regal retail landmark, but it was abandoned in the 1960s. It epitomized the state of deterioration of the historic core of downtown Los Angeles. It was just the right size for us, about 400,000 square feet.
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Q: How much is it costing to convert the building and when will it be done?
A: The state is into that building for about $48 million, just under $120 a square foot. The effective rent per square foot per month is $1.20, compared with $1.85 we were paying scattered all over--or $3 if we had built a brand new building.
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Q: You said the Broadway building deal provoked a lot of ill will within the industry?
A: Brokers hated us. People thought we were out of our minds. They thought the state had really flipped its lid because there was space in every other high-rise downtown. They just couldn’t understand why we would tackle something that was so superficially unattractive and difficult. But we saw an opportunity to help revitalize the historic core of downtown and save a building with historic significance--all in a deal that was extremely economical. I think in our culture we treat our real estate like Kleenex. We use it once and we throw it out. That simply isn’t tolerated in parts of the world where land has become more precious, such as Europe and Asia.
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Q: Do you recommend government service for others?
A: I would hope that all industries would recognize the value of offering good, private-sector people to manage government operations as a sort of mid-career sabbatical because mid-career is the time when you have some skills to offer. The challenges are immense, but the rewards are considerable, as is the value to the community.
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Q: You said bureaucrats should only serve temporarily. Why?
A: You only have so much good will, you only have so many silver bullets, there are only so many battles you can fight, and every time you win something you engender some opposition. Slowly, like scar tissue, that opposition begins to restrict the process, so it gets very difficult after awhile. Robert McNamara once said the only way to stay popular is to do nothing.
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This Week’s Make-Over
* Investor: Chase, 29
* Occupation: Radio disc jockey
* Financial goals: Learn about personal finance and begin an investing program
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Current Portfolio
* Cash: $8,000 in a bank checking account
* Retirement account: $450 invested in an IRA in a bank money market account
* Debts: $2,000 on two bank credit cards; about $17,000 owed on 1996 sport-utility vehicle
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Recommendations
* Begin saving in employer’s 401(k) retirement plan and open a Roth IRA.
* With $10,000 inheritance, Chase should first pay off credit card bills, then assemble a varied portfolio of mutual funds.
* Because Chase has a long time horizon for his retirement savings and wants some of his money to be invested in a “socially conscious” manner, the planner recommended a portfolio that emphasizes stock funds and suggested several “socially conscious” mutual funds for Chase to consider. In making stock market investments at such a volatile time, Chase should be sure he’s using money he doesn’t expect to need in an emergency.
* Take emergency savings out of checking account and put into higher-yielding money market account or fund.
* Look into renters insurance.
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Recommended Mutual Fund Choices
* Acorn International: (800) 922-6769
* Ariel Appreciation: (800) 292-7435
* Calvert World Values International Equity: (800) 368-2748
* Citizens Global Equity: (800) 223-7010
* Domini Social Equity Fund: (800) 762-6814
* O’Shaughnessy Cornerstone Growth: (800) 797-0773
* Pimco Total Return Institutional III: (800) 927-4648
* Vanguard Index-Trust 500 Portfolio: (800) 523-8398
* Vanguard International Value
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The Situation
*Investor: Chase, 29
*Financial goals: Learn about personal finance and begin an investing program.
*The problem: Chase needs to save more and invest in an educated way.
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Meet The Planner
Brent W. Kessel is the principal of Abacus Financial Planning, based in Santa Monica. In addition to providing fee-only advice, the company manages money for individuals, small businesses 543256164
