SEC Signs 1M SF Lease Extension As New Headquarters Plan Remains Stalled

The Securities and Exchange Commission has extended its lease at D.C.'s Station Place complex as its plan to build a new headquarters has failed to move forward, Bisnow has learned. 

The SEC signed a five-year lease extension to occupy roughly 1.1M SF at Station Place I and II, while it is giving back about 210K SF at Station Place III, two sources with knowledge of the deal tell Bisnow. The new lease term began Oct. 1 and expires in 2028, though it includes an early termination option, the sources said.

An SEC spokesperson confirmed to Bisnow that the agency executed a lease extension last week for up to five years at Station Place I and II. 

The three-building Station Place complex sits next to Union Station and is owned by Property Group Partners. Station Place I, II and III are located at 100 F St. NE, 600 Second St. NE and 700 Second St. NE, respectively.

The SEC signed a 1.2M SF lease agreement in 2021 with developers Douglas Development and Midtown Equities to build a new office in NoMa, a project with a future that remains uncertain.

The plan had called for construction at 60 New York Ave. NE to begin in June 2022 and for the SEC to move into the new office in 2025, but the development team has struggled to obtain financing to advance the project. The General Services Administration, the federal agency that manages the government's real estate, has for months been pushing the developer to show it has the financial ability to develop the headquarters as agreed upon, as Bisnow reported in June.

No announcement has been made about the status of that deal, and Douglas and Midtown didn't respond to requests for comment Wednesday. The SEC's spokesperson deferred comment on the development to the GSA.

A GSA spokesperson said it granted the SEC the leasing authority to extend its Station Place deal by five years, but in response to a question about the new headquarters they said the agency "doesn’t comment on matters involving negotiations concerning active contracts."

The lease at Station Place had been set to expire Sept. 30, and SEC Chair Gary Gensler told a House committee in March the agency was preparing to vacate one of the three buildings. Credit analytics firm Morningstar, which tracks the property due to the CMBS loan tied to it, reported servicer commentary in July saying the owner was negotiating a lease extension with the SEC. 

PGP had competed to keep the SEC at Station Place with a long-term lease, and it lodged several protests of the deal for a new headquarters.

Prior to the lease award, the landlord's entity, Second Street Holdings, filed a protest in federal court contesting the search parameters, specifically the requirement that the government have an option to purchase the new headquarters. After the selection of the Douglas-Midtown team, PGP lodged a protest with the Government Accountability Office and later filed a lawsuit alleging the GSA ran a flawed procurement process. The protests and lawsuits were all denied or dismissed. 

The challenges with the deal for a new headquarters have come as the commercial real estate market is in a vastly different place than it was two years ago: Rising interest rates have changed the equation for financing projects, higher construction costs have further squeezed development deals, and lenders have been hesitant to make any new bets on office projects and have sought to reduce their exposure to the sector due to the lingering effects of remote work. 

Additionally, the federal government has pushed to reduce the size of its office footprint, as a GAO report in July found that most of the agencies it studied used 25% or less of their headquarters space. So far this year, the government has revealed plans to cut the National Labor Relations Board's D.C. office by at least 40% and to shrink one of the Department of Justice's D.C. offices by more than 150K SF. In November, it revealed plans to reduce the Patent and Trademark Office's massive Alexandria headquarters from around 2.4M SF to 1.6M SF. 

UPDATE, OCT. 4, 4:10 P.M. ET: This story has been updated with comment from a GSA spokesperson.