Uncle Sam Wants You
Despite Rules and Regulations, Brokers Can Find New Business Working With the GSA.
Editor's note: Government demand for safe, modern office space continues to grow, and no single tenant exists in the United States with better credit. Commercial real estate brokers increasingly will have opportunities to promote clients' properties to government entities. What follows is one broker's play-by-play of doing business with Uncle Sam.
The General Services Administration's bold, block advertisements to lease space often run in local newspapers' business sections. Unfortunately, the list of required parameters probably has discouraged many brokers from taking the next step to inquire about the projects.
While we've all heard the horror stories of trying to do deals with the federal government, I always had in the back of my mind the nice commission a local competitor earned by structuring a build-to-suit deal for the FBI in the early 1990s. When I saw a GSA advertisement soliciting inquiries for a new Omaha, Neb., headquarters facility for the Drug Enforcement Administration and Bureau of Alcohol, Tobacco, and Firearms, I decided to look into it.
As a result of this transaction, I consider the government to be a proven performer. My experience developing a build-to-suit office building for the GSA to lease was a positive, win-win situation for all. In addition to making a nice fee, I built a stronger relationship with my client and forged new contacts with GSA professional managers in Kansas City, Mo.
A client of mine had a 6-acre site that it originally acquired to develop miniwarehouses. However, after zoning problems prevented the development, the client held on to the parcel. By the time of the GSA solicitation, an office development was the highest and best use for the site.
I first contacted my client to find out if he had any sensitivity to working with government agencies. Once I ascertained he was comfortable with this plan, I sought more detailed information.
The lease parameters listed in the GSA's initial newspaper solicitation ruled out several normally suitable sites and existing buildings by virtue of location, size, and security demands. Based on this assessment, I focused on proposing a class A build-to-suit office building located at the site, which was naturally sloped to allow for the government's required underground parking. The proposed three-story building, including the underground parking garage, would be larger than what the GSA would occupy, so the balance of space would be offered to the open market for lease. After receiving further information from a GSA contracting officer, I submitted the general facts pertaining to my proposed site and received the GSA's solicitation for offers, or request for proposal package.
The SFO document spelled out everything from the minimum size of the space to be delivered to the government after final measurement to the types of door hinges that were required. It took at least two or three readings to comprehend what was involved. The DEA and ATF's security sensitivity probably made this deal more complex than usual, but all government contracts require a greater amount of detail and specificity than most private-party transactions.
During this phase, my prime responsibilities were to estimate operating expenses, put the proposal together, and estimate total rental and parking garage rates. My client estimated the cost of the structure and value of land and used my figures as a base from which to achieve final pricing, which we did together. The process took about six weeks.
While working on our response, several areas stood out as significantly different from a normal RFP submission. For example, the GSA requires an estimate of final usable square feet within a tight range, as long as the building hits the minimum. While the SFO always refers to the gross -- or rentable -- sf, it was not used in any pricing calculations.
The bid also must take into account the unit costs of doors, light fixtures, wall lineal footage, and other specific details. After the job is completed, the GSA calculates how many doors, light fixtures, and lineal feet of wall were provided vs. what originally was specified. Then either the GSA writes the developer a check for additional items, or the developer writes the GSA a check at lease commencement if fewer items were required. This is done in large measure because the government agencies do not always know how the space will lay out until after a lease is signed.
In addition, all leases are priced on a full-service basis with a base-year expense stop. Trying to decipher the SFO language when it comes to establishing the base year with regard to treatment of real estate taxes was not easy. The required base-year expense stop could not adjust more than the annual percent change in the Consumer Price Index for urban wage earners and clerical workers. However, real estate taxes were to be paid by the government based on the base year, which was the first full year of building operation. Not knowing when the county would fully assess the building, compounded by the local custom of real estate taxes always being paid in arrears, created confusion on how best to compute this major variable in the expense stop.
To avoid not being able to pass through the actual amount of taxes, we simply assumed a full assessed value from the lease commencement and multiplied by the current mil levy to calculate the real estate taxes. As a result, the GSA is paying a higher rent in the first year because the SFO did not clearly allow for the government to take advantage of a partially assessed building during the early years of the lease.
Finally, the GSA required that the space be delivered within 270 days from the time both parties approved final plans. In our case, the agencies had flexibility in their moving time frame because they were coming from other government space. In some cases where there's pressure to move a tenant in, penalties may be assessed if deadlines are missed.
The GSA reviewed our submission and its other offers. It was very careful not to divulge information about other parties that may have been bidding on the job. About 30 days later, GSA officers invited us to their regional headquarters to ensure that we understood their needs before we submitted our best and final offer. Our second offer was priced slightly higher than the first, and we were awarded the job about 30 days later.
The GSA drafted the lease, which essentially was the SFO document. However, we encountered a delay while waiting for the lease to arrive. When we pressed for the lease to be delivered so that construction could begin, it became apparent that something was slowing things down.
As it turned out, politics had found its way into our project. New government-building sites are screened to make certain they are not Native American burial grounds or sites with other significance. During the site investigation, some local and state historical groups learned about the project. Because the government uses historically significant structures when feasible, several historical groups pressed the GSA to move the offices to a historical property in downtown Omaha. In the end, GSA officials worked with local historical groups on future relocations and our lease finally showed up.
Construction on the class A office building, named Emerald Pointe, began in July 1998 and the GSA officially took possession on Nov. 1, 1999. The building is 31,488 usable sf on three floors with an underground garage completely leased by the GSA. The first floor is being leased to non-GSA tenants.
Working with GSA contracting officers in many ways is like working with in-house corporate real estate managers. They are looking for competent, knowledgeable, and ethical real estate professionals who can help them do their job better and in less time. Brokers seeking opportunities should watch for and inquire about published notifications for space. Direct cold calling to GSA offices may not work since the GSA seems determined to make sure all brokers and developers play from a level field. But it may not hurt to ask.