State Agency's In-House Expertise Could Shift Public-Private Real Estate Dynamics

The Department of Accounting and General Services (DAGS) has proposed establishing an in-house team of highly paid experts to manage complex public real estate redevelopment projects. This initiative aims to reduce reliance on external consultants and potentially save taxpayer money, but it could also reshape the landscape for private developers and investors involved in state-led ventures.

The Change

The core of the proposal involves DAGS hiring a dedicated team of specialists, including attorneys, construction managers, and financial analysts. These individuals would possess deep expertise in complex real estate transactions, public-private partnerships (PPPs), and development projects. The stated objective is to bring more in-house capacity to handle intricate projects, thereby enhancing efficiency and cost-effectiveness for the state. The timeline for this proposal to be enacted is uncertain, contingent on legislative approval and agency budgeting for fiscal year 2027, but the shift in strategy could begin influencing project planning within the next 6-12 months.

Who's Affected

Real Estate Owners (Developers & Landlords)

Developers who have historically partnered with the state on significant redevelopment projects may find their established relationships and business models challenged. If DAGS increases its in-house capacity and expertise, it could lead to:

• Increased Competition: The state may self-perform more aspects of project planning and management, potentially reducing the scope or number of opportunities available for private developers.
• Altered Partnership Structures: New internal capabilities might lead DAGS to propose different partnership frameworks, perhaps with a greater degree of state control or a reduced role for private entities in early-stage planning.
• Procurement Changes: Solicitation processes might evolve to better integrate the state's internal teams, requiring developers to adapt their bidding strategies.
• Longer-Term Planning: Developers looking at multi-year state projects will need to factor in potential shifts in agency approach and capacity.

Investors (Real Estate & Portfolio)

Investors backing real estate development firms or directly participating in PPPs need to assess how this strategic shift by DAGS could impact their portfolio:

• Risk Assessment: Projects managed with a strong in-house state team might present different risk profiles compared to those managed primarily by external consultants. This could affect a project's perceived stability and return on investment.
• Opportunity Identification: While some opportunities might diminish, new ones could emerge if the state's enhanced capacity leads to more ambitious or efficiently executed projects that become attractive investment targets.
• Market Dynamics: A more active and capable state development arm could influence land values and market competition in areas targeted for public redevelopment.

Entrepreneurs & Startups

While large-scale redevelopment projects might seem distant for many startups, this initiative could have indirect effects:

• Resource Allocation: If the state invests heavily in its own talent for these projects, it could indirectly free up consulting resources or create demand for specialized technology or services that startups might offer.
• Indirect Opportunities: Successful state-led projects could spur economic activity in surrounding areas, creating conditions favorable for other businesses, including startups looking for growth.
• Talent Market: The hiring of highly paid experts by DAGS could also draw from a limited pool of specialized talent in Hawaii, potentially affecting the recruitment landscape for smaller firms.

Second-Order Effects

This move by DAGS, while focused on internal efficiency, could trigger several ripple effects within Hawaii's constrained economy:

• **Increased State capacity for development → More complex public projects executed internally → Reduced reliance on external consultants → Shift in demand for specialized private sector services → Potential pressure on smaller firms to innovate or find niche markets.
• **State in-house expertise → Potentially faster project initiation or execution → Increased competition for development land → Higher land acquisition costs for private developers → Slower pace of private sector driven development in contested areas.

What to Do

This proposal is in its early stages and requires legislative and agency action before its full impact is known. Therefore, the recommended action is to WATCH.

Action Details:

Monitor legislative committees and DAGS announcements regarding the approval and funding of the proposed in-house expert team over the next 6-12 months. Specifically, watch for official solicitations or RFI (Request for Information) processes that indicate a change in how DAGS plans to source expertise or partner on projects. If the proposal is approved and DAGS begins actively soliciting for these expert roles or a significant shift in their PPP strategies is announced, real estate owners and investors should re-evaluate their engagement strategies with the state and adjust their project pipeline planning accordingly.