EXCLUSIVE: Federal Government’s Real Estate Arm Seeks To Do More Deals Without Congress
The arm of the federal government in charge of its vast real estate holdings is looking to reconfigure its approach to leasing.
The General Services Administration is exploring a policy change that would allow it to pursue leases and capital projects worth up to $9M without going through Congress, furthering efforts to deal with a backlog of slow-moving lease negotiations, a top official said Wednesday.
"It takes five years to execute [a lease], and in five years' time, who knows how many people are going to telework?" Nina Albert, Public Buildings Service commissioner for the GSA, said at Bisnow's D.C. State of the Market event. "I need to get down to a transaction process that's much faster, and that's something I will be working with Congress on."
A spokesperson for the GSA confirmed that the agency would pursue a higher threshold while declining to name a specific number in a statement provided to Bisnow.
"To address cost increases in the buildings industry, as well as achieve a modernized and optimized federal building portfolio most efficiently, GSA believes that having a higher prospectus threshold is a sound approach and is continuing to work with OMB and Congress to develop this proposal," the GSA spokesperson said.
The GSA is the nation's largest office tenant, occupying roughly 180M SF of office space around the country. That total also includes roughly a third of all D.C. office space, making it a significant occupant in an office market searching for signs of life.
Some of those leases include blockbuster deals, like the Transportation Security Administration's 625K SF office in Springfield, Virginia, or the Securities and Exchange Commission's 1.2M SF lease in Northeast D.C. But there are plenty of smaller leases and capital projects that Albert, who is in charge of the federal government's owned and leased offices, would like to speed up by skipping congressional approval.
"This is both a strategic and tactical exercise," Albert said. "As leases are coming up, we're trying to get out ahead of it as early as possible."
Inevitably, a portfolio that large has consistent churn. Sixty percent of the federal government's leases will be expiring by the end of 2025, according to federal data. That represents millions of square feet in the National Capital Planning Region alone, according to Darian LeBlanc, executive vice chair at Cushman & Wakefield.
"Anything you can do to streamline this process, it will be music to everybody's ears in this marketplace," Leblanc said during the keynote discussion with Albert Wednesday.
If the change to the lease prospectus threshold is approved, the GSA would gain authority to sign a lease with a net average annual rent below $9M without going through Congress, giving the agency more autonomy and streamlining its leasing process, Leblanc said. The current threshold is $3.375M, according to the GSA's website.
Over the past several years, the GSA has tried a variety of tactics to reduce both its lease negotiation time and its footprint, which has been shrinking since conservatives in Congress began flagging rising costs from office leasing a decade ago.
Former PBS Commissioner Dan Mathews told Bisnow last year his most significant accomplishment was reducing leasing costs, which he did in part by increasing the average lease term length from five years to more than 10.
Albert, who has been in the role since July 2021, told Bisnow in September she would like to see more agencies move into government-owned buildings and consolidate their workforces.
Albert said the pandemic has forced agencies to reconsider their footprints and embrace telework at a level they haven't before. Per Albert, half of all federal agencies allowed telework prior to the pandemic, and the same allow telework today. But the pandemic pushed the number of workers taking advantage of the policy from roughly 50% to 90%.
"We've proven to ourselves how we can work, what works well," Albert said on Wednesday. "Now we need to prove to ourselves what the corollary is. What's the benefit of being back in the office?"
Albert expects the government's footprint to further consolidate. She said agencies typically say they're shrinking by 15%, but when you dig into the numbers it could be anywhere from 20% to 40%.
"I don't want to apologize for why the federal government has to manage costs, I think it's an important priority," Albert said. "I think the second important priority is making sure that we have workspaces that are attractive to this generation and to the next one."
Since taking on the role, Albert said she had focused on a mantra of modernization and optimization. She said telework policies are as much a method of attracting talent as they are a way to address office footprints, but she anticipates it may have some knock-on effects on the federal government's overall footprint.
She said agencies still favor long-term leases in cost-effective commodity space, but she's embracing more modern office buildings, such as the SEC's new 1.2M SF headquarters in NoMa, in part to meet sustainability goals.
The effects of the federal government's consolidation have rippled through the D.C. office market. Cameron Pratt, managing partner and CEO of Foulger-Pratt, said the government's historical tendency to be the sole occupant of large, commodity office buildings leaves empty buildings when agencies leave.
In an era when Class-B offices are experiencing record vacancies, that opens the door to office-to-residential conversions in the District's downtown office market, changing the fabric of an office-heavy environment.
"D.C. is unique because GSA is the single occupant of so many buildings," Pratt said. "This office-to-residential trend, you're seeing D.C. is kind of one of the leaders of that and it's because there are so many 100% vacant offices closing because of the GSA."
The GSA is only just beginning to factor the pandemic into its leasing strategy. Albert said it would be another year at least before her agency more fully understood the new work paradigm.
Yet even as federal workers begin returning to offices, other large leaseholders are taking notice of the government's shift in thinking on office space, and adjusting their own plans accordingly.
"Particularly in D.C. where you've got the federal government, which is one of the major tenants, people are starting to realize: I don't need to go back to the office if the federal workers can work remotely," Ryan principal Steve Thompson said. "So what does that look like as these leases start to roll, do people want smaller spaces?"
UPDATE, MAY 12, 4:15 P.M. ET: This story has been updated to include new comments from the General Services Administration.