Leasing CCIM Feature

The GSA Way

Government leases can be lucrative — if you know the rules.

The General Services Administration probably is the largest U.S. tenant, providing space for more than 400 federal government agencies, bureaus, and commissions with more than 1 million employees and contractors. At the end of its fiscal year 2010, GSA's leased inventory totaled 190 million square feet held through 9,100 GSA leases. It represented more than $5 billion in annual rent payments.

Could there be a better tenant than the federal government? Probably not. On a lease basis, GSA typically stays in place for 16 years. On a square footage basis, when GSA leases space in a building, it continues to lease space there for on average 25 years.

Such figures are music to the ears of landlords who are looking for long-term stable tenants to fill their buildings. But is it worth the effort for small and medium-sized property owners? Clearly the opportunity is there: More than half of GSA's leases are under $150,000 net annual rent and nearly 30 percent are in the $150,000 to $500,000 range. Yes, GSA plays by a different set of rules than typical commercial tenants, but property owners, leasing agents, and landlords may find it worth their time to understand exactly how to work with the GSA.

Different Rules

Not understanding the unique terms and conditions of government leases can be costly. For the record: Leases with governmental entities are very different from typical commercial leases. Government lease contracts must adhere to a complex set of policies, standards, and regulations set by federal statutes, executive orders, and laws. The landlord must make various certifications that are not typically required for commercial leases, and meeting the lengthy list of mandates required during the leasing process can impact both cost and the overall transaction time.

For example, GSA controls the leased space and can bring tenants in and out of the space during the lease term, which allows GSA to manage leased space (GSA's target for leased vacant space is 1.5 percent. In fiscal 2010, it was just 0.8 percent). GSA must comply with the Federal Acquisition Regulations, which means that rental payments for government leases are made in arrears instead of in advance like typical commercial lease payments. Security deposits are inapplicable to federal leases.

Federal regulations and laws, rather than state laws, apply to government leases. Regarding disputes, liability, and insurance requirements, government leases require that disagreements be handled through the government's lease contracting officer, or LCO; lease clauses specify how disputes are governed; and GSA, like most government agencies, can and will self-insure for all or part of the insurance obligations under the lease. Most commercial leases require the tenant to indemnify the landlord for various issues to protect the landlord from certain risks. In most cases, the government is prohibited from providing such indemnifications.

GSA uses national broker contractors for commercial real estate lease acquisition services. CB Richard Ellis, Jones Lang LaSalle Americas, Studley, and UGL Equis were awarded contracts in June 2010. Real estate brokers negotiate and collect commissions directly from building owners as is typical in commercial real estate transactions. GSA leasing professionals serve as project managers, guiding the brokers to fulfill their responsibilities under the contracts.

The government's LCO acquires and negotiates all government lease contracts. The LCO can use the expertise of the GSA national broker contractors in the lease process, but only the LCO, a government employee, can enter into the contract on behalf of the federal government. The LCO makes certain that the contract complies with all statutory provisions and procedures.

Lease Reform. To make it easier for private landlords to work with the government, GSA began a lease reform initiative in late 2009 that simplifies the internal GSA processes for planning and executing lease acquisitions. To improve private-sector collaboration, the new lease models are tailored to the complexity of the transaction, based on lease size, required security level, and other considerations. Benefiting the most will be leases with net annual rent values less than $500,000 (total rent and property taxes less operating expenses), which represent the majority of GSA's lease transactions. For an in-depth introduction to GSA's lease reform, go to www.gsa.gov/portal/content/211925.

GSA Lease Portfolio

Finding GSA Opportunities

GSA's Public Buildings Service leases space for most federal agencies, including offices, laboratories, warehouses, clinics, and border stations in more than 2,100 communities - in every state, Puerto Rico, American Samoa, Pago Pago, Guam, Saipan, and the U.S. Virgin Islands. By comparison, real estate investment trusts typically maintain properties in fewer than 20 major metropolitan markets.

GSA works from 11 regional offices. The regional breakdown and each region's contact information and inventory of owned and leased properties are on the GSA Web site. (See Shortcuts sidebar.) Commercial real estate professionals can learn a lot about where GSA leases space, square feet leased, and rent by looking at the monthly property inventory.

Each GSA space search begins with a solicitation, which is similar to a request for a proposal. (See GSA Leasing Steps sidebar for detailed information.) All solicitations for space larger than 10,000 square feet are required to be advertised on FedBizOpps.gov, the Federal Business Opportunities Web site. This site provides a comprehensive database of all major solicitations, contract awards, subcontracting opportunities, surplus property sales, and foreign business opportunities with the federal government.

FedBizOpps can be searched by the federal agency posting the request or by city and state. Searches should include the North American Industrial Classification System, or NAICS, codes 531210 and 531190 in the “Keyword/Solicitation#” field.

Those who do business with the government must register at Central Contractor Registration (http://www.ccr.gov), the primary registrant database for the U.S. federal government. Users can send proposals to the respective purchasing agency, which may be from GSA, other federal agencies with statutory authority, or an agency holding a GSA delegation of lease authority, without registering at CCR, but registering early can help expedite the leasing process.

GSA also advertises in local newspapers or trade journals when seeking leased space requirements of any size, especially in smaller markets. Requirements less than 10,000 sf and under the current Simplified Lease Acquisition Threshold of $150,000 net annual rent also may be acquired by a more informal canvassing and direct contacts with potential offerers, who can market available space through listing services and local trade fairs. Potential offerers also can generate interest by sharing information with economic development councils, chambers of commerce, and GSA regional directors.

GSA Leasing Info Shortcuts

Learning More

GSA-certified vendors offer formal training on the basics of federal real estate acquisition, administration, federal lease law, techniques for negotiations of lease proposals, and the analysis of lease proposals. Designed for LCO training, these courses are available to anyone.

GSA's Top Secondary Markets
MSA Rentable sf in millions (leased and owned) Number of buildings
Kansas City 10.3 82
Philadelphia 10.1 135
Baltimore 9.7 102
Atlanta 9.1 120
Denver 8.9 146

The Leasing Desk Guide illustrates the typical considerations, process steps, and review requirements that GSA and national broker contractors normally expect to encounter. The desk guide contains authorities, policies, technical and procedural guides, and administrative limitations governing the acquisition by lease of real property. It replaces previous GSA leasing guides and incorporates other existing policies and procedures. The desk guide is available at www.gsa.gov/portal/content/184265.

Additional Realty Services Letters are available in the Effective Policies section at gsa.gov. GSA and national broker contractors must follow the policies of the effective RSLs until they are canceled and incorporated into Leasing Desk Guide issuances.

Upcoming local GSA workshops, seminars, and training events are listed at www.gsa.gov. Click on “About GSA” and then “Events” to see what is available. In addition, many consultants can provide detailed answers based on years of experience working with GSA.

Brenda Johnson, CCIM, CPM, is a senior realty specialist and Ted Mahoney is a contracting officer with the Public Building Services Office of Real Estate Acquisition. Contact them at brenda.johnson@gsa.gov and ted.mahoney@gsa.gov.

Brenda Johnson, CCIM, CPM, and Ted Mahoney

GSA Leasing StepsGSA receives a request for space from government agency.GSA prepares solicitation containing square footage, minimum requirements for lease award, instructions on how to offer, and method of lease award.Market survey is conducted to identify locations that meet minimum requirements.The solicitation is issued to all interested offerors. (Register at www.fbo.gov to receive notifications.)A technical evaluation is conducted to determine whether an offer meets minimum requirements, and a price evaluation based on analysis of comparative rents is made on each cost element of the offer.Final Proposal Revisions are requested if government is not awarding on initial offers. FPRs must be in writing and received by date and time established for closing of negotiations.All FPRs are evaluated. The most responsive, responsible offer that represents the best value to the government is chosen for award.GSA returns lease signed by LCO to the successful offeror (now lessor).If required, construction build-out schedule is established; layouts and drawings are approved by GSA and lessor. GSA monitors construction, conducts final inspection, identifies punch list items.After GSA accepts space as ready for occupancy, rent commences as agreed in the lease.

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