Trump’s GSA Aims To Save Money On Leases, But Decisions Can Be Slow And Opaque
After a lengthy transition, the General Services Administration has now had more than six months with its new, President Donald Trump-appointed leadership in place, and the strategies it is employing with the federal government's real estate portfolio have begun to take shape.
Brokers working closely with the GSA say it is launching new efforts to save money on its lease deals, but headquarters relocation projects like the FBI and Securities and Exchange Commission have shown it can be slow-moving and opaque when it comes to making big decisions.
Trump in September nominated Emily Murphy to lead the GSA, following his August appointment of Dan Mathews to lead the GSA's Public Buildings Service. Murphy took office in December, and in January the GSA named its new head of the National Capital Region, Scott Anderson. Mathews will speak June 11 at Bisnow's GSA & Federal Properties Summit, where he will be joined by several brokers and landlords who work on government deals.
Those brokers tell Bisnow the real estate community is heartened by many of the initiatives the new administration has begun to roll out, especially as it relates to lease terms. The GSA has for years been focusing on reducing its footprint, but the real estate industry had been frustrated by consistently short lease terms that provide less certainty for landlords and increase the annual rent the government pays.
The GSA had previously been signing leases with just five years of guaranteed occupancy, or firm term, Transwestern Managing Director of Government Services Matt Lynch said. But now it is beginning to do deals with 10 or 15 years of firm term, he said, allowing them to pay lower rental rates.
"They've done a good job of coming to understand how to unlock their purchasing potential and use that to get a better deal for the taxpayer," Lynch said. "Absolutely the longer firm term and the understanding of the importance of firm term is definitely helping them and is a trend that's happening now."
Since Mathews took office, the GSA has closed large deals to relocate the Transportation Security Administration to Springfield, consolidate the Department of Homeland Security's Citizenship and Immigration Services agency in Prince George's County and move the Customs and Border Protection Agency's Office of Information Technology to Ashburn. Lynch said it has also signed several 60K to 100K SF deals in the D.C. region and around the country that often don't make headlines, but have similarly used the longer lease term strategy.
"What we're seeing, which I think the lessor community is encouraged by, is we're seeing a greater emphasis on longer-term, non-cancelable leases," Stout said. "That's clearly evident at this point, and that's something we're all encouraged to see."
Two new initiatives introduced in recent weeks by the Trump administration and Congress could also improve the way the GSA does leasing deals and new projects.
The Office of Management and Budget last week unveiled its plan for a wide-ranging reorganization of the executive branch, the result of a yearlong study. The OMB's 130-page plan includes four recommendations that deal directly with federal property and the GSA. It includes a point on improving lease deals by executing longer, non-cancelable terms to secure lower rates. It also includes recommendations on improving property dispositions, creating a revolving fund for federal capital projects and considering opportunities to relocate offices outside of the D.C. region.
While the relocation point could worry D.C. landlords, Stout said he does not expect a widespread exodus from the region anytime soon. He said much of the new consolidations the government has done have occurred in the D.C. region, locking them in for years. But he did note that the biggest decision the GSA has made thus far, recommending a reversal to keep FBI headquarters on the Hoover Building site, included a plan to disperse 2,300 FBI staff to offices in Alabama, West Virginia and Idaho.
Another effort toward improving the GSA's cost efficiency is happening in Congress. The House Committe on Transportation and Infrastructure Wednesday approved a bill that aims to facilitate better government leases to save money and strengthen oversight of federal construction projects to keep them under budget. The bill, introduced by Rep. Lou Barletta (R-Pa.) still needs to be passed by the full Congress and signed by the president, but Stout views it as a positive sign because it increases the urgency on the GSA to execute better lease deals.
"It's legislation that would be welcomed by the property investment community," Stout said.
While the GSA's new leadership has closed several deals that were already in the works, brokers worry that some of the new agency relocations are taking longer than usual to get off the ground.
"We're seeing the time frames lengthen, not shorten, which is something that's not good," Cushman & Wakefield Executive Managing Director Scott Johnston said. "We're in a rapidly changing interest rate environment and a rapidly changing construction cost environment. The problem you have in some of these large transactions that involve new construction, you have things that are taking an extraordinary amount of time, by the time you've made certain offers, construction pricing and financing are only going to hold for a certain period of time."
One major relocation that has taken longer than expected to get moving is the SEC. The GSA in early April received congressional approval to begin its search for a new 1.3M SF SEC headquarters, which will likely be a new construction project in the District. Brokers had been expecting the GSA to release a request for proposals on the project by the end of the spring, but they are still waiting and haven't been given any reason for the delay.
"They haven't let anybody in the public know what the slow-up is this time," Johnston said. "Everybody's just kind of waiting to see what's going to happen."
The decision to cancel the search for a new FBI campus in the D.C. suburbs and instead keep the bureau on its current site also shows a hesitancy to move forward with big construction projects, Stout said.
"The story with the FBI just underscores how difficult it is for the federal government to execute large-scale, federal projects," Stout said. "Large-scale leases have been done successfully, but large-scale federal construction for whatever reason appears to be very difficult to execute."
A group of congress members, led by the Maryland delegation, has called on the GSA to return to its search for a new FBI headquarters in Maryland or Virginia. Lawmakers have also criticized the GSA for its lack of transparency throughout the process.
"This is a textbook example of how the federal government should not operate over a period of time," Sen. Chris Van Hollen (D-Md.) said at a February hearing in which Mathews testified. "It is an example people will use for decades to come about how the federal government misled the people from start to finish, failed to provide information to Congress when requested, and consistently changed its assessment of what was required for the FBI."
Stout said he was not surprised to see the GSA's relative lack of communication around the administration's FBI headquarters reversal.
"The idea that elements of the government would operate in an opaque way, including the GSA, is nothing new," Stout said. "The FBI is a very political real estate transaction in large part because three political jurisdictions are engaged and have a stake in the outcome."
Brokers have also noticed the GSA has cut back its communication with the real estate community over big leases and projects. Lynch attributed this to the contentious issues the GSA has been involved in over The Trump Organization's lease at the Old Post Office building, which has been the target of multiple lawsuits, and questions over its handling of the FBI decision.
"The issue is they're handling a lot of high-profile stuff right now, and they're under a lot of scrutiny," Lynch said. "I think it's just a little bit hard for people at GSA to be able to speak as freely as they might at other times just because of the environment that we're in with a lot of high-profile things happening."
Lynch, Stout and Johnston will speak June 11 at Bisnow's GSA & Federal Properties Summit, where Mathews will take part in the keynote discussion.