GSA Real Estate Heads On Their Plans To Handle 28M SF Of Expiring D.C. Leases Over The Next 5 Years
As the General Services Administration looks to execute the federal government's real estate strategy, from major headquarters deals like the FBI to 10K SF lease renewals, the D.C. Metro area is the region impacted most substantially by the agency's decisions.
The GSA represents 14% of all office tenants in the D.C. region and 17% in the District itself, according to CBRE's Marcy Owens Test. Because the agency has for years relied on short-term lease renewals, an unusually high number of those leases are expiring over the next few years.
In 2018 alone, 6.6M SF of GSA leases are expiring in the D.C. region, 57% above the 10-year average. Over the next five years combined, 27.78M SF of GSA leases will expire, setting up a myriad of competitions among landlords for large and small deals.
Among the biggest of those deals is the Securities and Exchange Commission. Brokers and landlords have been waiting for three months since Congress approved the SEC prospectus for the GSA to release more information on the competition.
GSA Public Buildings Service National Capital Region Commissioner Darren Blue announced Wednesday at Bisnow's GSA and Federal Properties Summit, held at Normandy's 950 L'Enfant Plaza, that the official request for lease proposals was released Tuesday. The request for least proposals gives landlords and brokers the information they need to compete for the 1.3M SF headquarters.
"We’re anxious to see your bids, we hope you compete, and I think it's a great opportunity," Blue said. "It's one of our largest deals in the last several years and we’re hoping we're going to move the market a little bit on it."
PBS Commissioner Dan Mathews addressed the FBI headquarters, which the agency in February proposed keeping at the Hoover Building site, a reversal from the previous, yearslong search for a campus in the Maryland or Virginia suburbs. He said the GSA plans to give Congress a prospectus in the near future for its plan to demolish and rebuild the Hoover Building site, and then it will be up to lawmakers to move the project forward.
"In order to go forward, we need two things: We need authority and we need money, and we don't have either," Mathews said.
The GSA is also in the process of relocating the Department of Homeland Security to the St. Elizabeths campus, a move that has taken longer than originally planned. Blue said the GSA is putting in a $220M request for a new office building on the campus, and it plans to move the department's secretary to St. Elizabeths in April.
"For the last decade, we've been doing short-term extensions over and over again in a variety of places because we think that money is going to show up in the next year to build out some large section of St. Elizabeths, and we’ll make decisions," Blue said. "You’re going to see a change not too far off in how we approach all of those leases and what we’ll do."
The GSA is also shifting its leasing strategy for all of its smaller deals that may not be headline-grabbing agency relocations. The massive surge of expiring leases coming due in the next few years is largely attributable to short-term extensions, Mathews said, and the agency now plans to convert those into long-term deals to give landlords more security and get better deals for the government.
"You should see more of these deals coming out on the street for long-term replacement, but it takes a little while to turn that ship around," Mathews said. "You're still seeing a lot of extensions and you're going to continue to see those in 2018 and 2019, but come 2020 and 2021 when those leases are expiring ... they all know that come 2021, you have to plan to replace those on time with a good, long-term deal."
As head of the GSA practice for JBG Smith, one of the government's largest landlords in the country with 56 leases for 2.6M SF, Andrew Abramson said the short-term extensions the government signed in recent years have caused major headaches. He said the GSA will often ask to extend for four years with just two years of firm term, with the option to cancel with 180 days notice.
"It's very hard to market that block of space to the next tenant, because you can't really look that next tenant in the eye and say, 'The government will be out on this date and after that day it's yours,'" said Abramson, speaking on a panel of landlords, brokers and architects at the event. "That causes an amount of frustration on our part."
But Abramson said he is seeing the GSA start to fix that problem, and the brokers on the panel all agreed that the GSA under Mathews' leadership has improved the way it does lease deals.
"It really has turned around, and I think they got the message, they understood us as their industry partners that what makes us tick is that firm term and the length of firm term," Transwestern Managing Director of Government Services Matt Lynch said. "I think that message has gotten through and that's a very positive development for this industry."
Longer-term leases can present a challenge from a design perspective, though, IA Interior Architects Managing Director Holly Briggs said. Since the organization of agencies can shift from one presidential administration to another, Briggs said federal offices need a lot of flexibility, something she said they are not focusing on enough.
"We've seen people focused on trying to get their numbers reduced and their utilization rates in line, but they're not really looking forward in terms of building in maximum flexibility to take them through a long-term lease," Briggs said. "It's almost like going back 15 or 20 years, we're looking at departments in drywalled suites and really looking at things that are confining them."
CORRECTION, JULY 11, 4:55 P.M. ET: A previous version of this story misstated the name of IA Interior Architects. The story has been updated.