The House of Representatives, Transportation and Infrastructure Committee, convened this morning in a mark-up hearing to finally approve 11 prospectuses, nearly all of which have been languishing on the Hill for more than a year. In fact, our quick review of the last 78 lease prospectuses approved by this committee confirms that process is rarely quick.
Notwithstanding a small batch the 110th Congress railroaded through in just 35 days back in 2008, the House has pretty poor history of approving prospectuses quickly (the Senate reviews them as well but the House typically applies much more zealous oversight). Of course, Congressional approval is not meant to be a rubber stamp. The House will often ask questions about the agencies’ space requirements and GSA must provide the answers. This back and forth can go on for considerable lengths. But this round of prospectuses include several that are now the all-time record holders for lumbering approval. Seven of the eleven prospectuses approved in today’s batch were originally submitted to Congress in September 2010. Yes, that’s 545 days ago; and even that record will soon be broken because there are other prospectuses submitted at the same time which have yet to be approved.
The House has now adopted a much more activist posture in evaluation of these prospectuses. In the last batch of approvals issued September 8, 2011, the House added qualifications strictly enforcing tight space utilization resolutions and also requiring GSA to seek purchase options in each lease. This time the House went even further, compelling GSA and its tenant agencies to reduce their space requests. Rep. Jeff Denham, Chair of the House Subcommittee on Economic Development, Public Buildings and Emergency Management, openly questioned why GSA was presenting growing space needs at a time when the budgets for most agencies are flat or shrinking, and his committee has sought to scale back federal space needs.
The net result: The square footage approved in the eleven prospectuses was more than 300,000 SF (11%) less than requested by GSA. By Denham’s calculation, the space reductions imposed by the House will save the American taxpayers $19.5 million in annual rent and a total of $317 million over the combined lease terms.
Real estate cost reductions are hard to argue with (assuming they are real reductions) and the issue receives bipartisan support. However, the landlord community desperately wishes that the feds could reach these decisions more efficiently. Prospectus leases, by definition, are the largest in GSA’s portfolio, often comprising entire buildings. Approval delays force these leases into holdover or short term extension placing tremendous and unfair financial burden on property investors and lenders. The delays also serve to limit the relocation options of the tenant agencies and one can argue that savings are ultimately diminished when agencies’ negotiating leverage is compromised.