Some of the best-known buildings in Ottawa and Gatineau could soon be for sale under a plan being finalized by the federal government’s real estate arm.

The properties include such landmarks as Library and Archives Canada, the Lester B. Pearson Building, the East and West Memorial Buildings and the Place du Portage and Tunney’s Pasture complexes.

In the first phase of the plan, the government is likely to sell nine of its most attractive properties, worth an estimated $1.5 billion, in Ottawa, Toronto and Vancouver. Overall, the government’s real estate holdings are estimated to be worth as much as $7 billion.

The impending sale is being driven by the government’s unwillingness to make the estimated $4 billion investment needed to renovate and upgrade its aging portfolio of 325 real estate holdings across Canada.

Instead, those who buy the buildings would make the necessary renovations. In return, the government would rent back space on 25-year leases, providing the new owners with a safe and assured revenue stream.

James McKellar, director of the Real Property Program at York University’s Schulich School of Business, says such a sale and leaseback deal will almost certainly increase costs for taxpayers.

“On the face of it, it looks good — the government’s going to get $1.5 billion,” he said. “But you don’t make money out of nothing. In the end, it’s going to cost them more.

“It looks like the government’s doing the right thing today, but it’s really short-term gain for long-term pain.”

The Martin government considered selling off some federal properties, but was defeated before any decisions were made. The idea was revived last year by the Conservative government.

Last September, Public Works and Government Services awarded a contract to BMO Capital Markets and RBC Capital Markets Real Estate Group to recommend new cost-effective strategies for housing 235,000 federal employees in 1,800 locations across Canada.

The government’s total office space inventory is 73.168 million square feet, about half of which is in the national capital region. It owns half of the space outright, leases 31.204 million square feet and occupies an additional 5.38 million square feet under lease-purchase agreements.

The average age of the office buildings is 44 years, and several key properties have reached their life expectancy.

Over the past decade or so, the government has spent little on upkeep and most of the buildings fall short of current environmental standards.

Last year, Public Works identified a list of 40 properties that it asked the BMO and RBC team to study in devising its strategy.

Nineteen of the properties are in Ottawa and six are in Gatineau.

The 40 properties were chosen because they represent more than half the estimated value of the government’s real estate portfolio and reinvestment requirements.

Nobody was saying Wednesday which of the properties is likely to be sold first. Spokesmen for two commercial realtors in Ottawa, Royal LePage and the Altus Group, declined to comment because they have been retained for the sale and have signed confidentiality agreements.

Pierre Manoni, a Public Works spokesman, said the government is still considering its options and there’s no timetable yet for any possible sale.

“No decisions on the future of our real estate portfolio will be made until the recommendations have been carefully reviewed,” he said.

Mr. McKellar, who has just completed a book called Managing Public Real Estate Assets, said the value of the buildings will be determined almost entirely by the rent the government agrees to pay the new owners.

“You’re not selling buildings,” he said. “You’re selling leases. If the government says, ‘We’ll sign a 25-year lease at $50 a foot,’ then you’ve got one value. If you say $100 a foot, you’re going to get twice as much.”

Under new international accounting standards, the government should record sale and leaseback deals as liabilities, not assets, Mr. McKellar said. Such arrangements are like mortgages.

“If you’ve got a 25-year obligation to pay out this amount of money, that’s not income, that’s debt.” The sale would increase ongoing costs because the government currently pays no rent for about half the space it uses, Mr. McKellar noted.

But he said one advantage of a sale is that it would take Treasury Board out of the equation. The difficulty of getting spending approval for upkeep and repairs is a major reason why the government’s building portfolio is in such poor shape.

“The good news here is that essentially what you’re doing is making a 25-year commitment, which they couldn’t do under the normal political system,” Mr. McKellar said.

According to Stan Krawitz, one of Toronto’s leading authorities on commercial real estate, the timing of a possible sale couldn’t be better.

Commercial real estate trades at a multiple of the rental rate, he said, and right now, multiples are at a historic high. “In layman’s terms, that means it’s very, very cheap money,” he said.

During the recession of the early ’90s, commercial buildings traded at 10 times their annual rent. But now, they’re trading at about 16 times their rental value.

“With the federal government being the best rated credit entity in Canada, you could see this trading at 17 or 18 or even 19 times the rent that the government will pay,” said Mr. Krawitz, who is president of Real Facilities Inc.

But there’s a risk for taxpayers if the government becomes greedy, he warned.

There will be a “huge temptation” on the government’s part to generate as much money as possible from the sale, he said. One way to do that would be to set the rental rate above market rates.

“That would be a mistake,” Mr. Krawitz said. Instead, the government should set the rental rate at the lower end of the market and use competitive bidding to drive the multiple as high as possible to get the best price for its buildings.

In the current environment, that shouldn’t be difficult. Pension funds and real estate investment trusts — the likeliest buyers of the federal assets — are flush with cash that they’re looking to invest in something that generates predictable and guaranteed monthly income.

“What better vehicle than a government tenancy,” Mr. Krawitz said.

Government employees should also benefit from the sale, Mr. Krawitz said, because the new owners would have to make the necessary upgrades.

“The government clearly does not have the money or the inclination to maintain these buildings. If the work is not done, that means that those workers, five or 10 or 15 years out, will be working in sub-par conditions.”

But Mr. McKellar said it would be cheaper for the government to borrow the money to repair its buildings than to unload its portfolio in sale and leaseback deals.

If it’s determined to sell, Mr. McKellar said the government would be wise to sell only the buildings and keep ownership of the land.

“The building is like a vegetable — it has a shelf life,” he said. “The land is something that will never deteriorate. It will only become more important, and at any given point in time, you can always sell it.”

The government should also price in the flexibility it is giving up by signing a long-term lease, he said, adding that some companies pay a premium for a short-term lease to keep their options open.

Mr. Krawitz said the government must take a hard look at its future space needs before entering into any sale and leaseback deals.

“Don’t just use it as an opportunity to raise money. If a building isn’t required, don’t sell it on a sale/leaseback for 25 years when, five years from now, the government’s not going to need the property. That would be a huge mistake.”

It’s also crucial that the government negotiate lease renewals at a fixed price when the buildings are sold, he said.

“They have the negotiating power and leverage today that they will not have in 24 years time.”