The SBA recently (September 25, 2012) issued three final rules in the Federal Register, effective October 24, that increase the size standards for some types of firms in three North American Industry Classification System (NAICS) sectors, including Sector 53, Real Estate and Rental and Leasing. SBA increased size standards for businesses in 21 areas of Sector 53, including “Leasing of Building Space to Federal Government by Owners,” in which the size standard was raised from $20.5 million to $35.5 million, and “Offices of Real Estate Agents and Brokers,” which was raised from $2.0 million to $7.0 million. In total, the revised standards allow an estimated 13,000 more firms to be considered “small” and thus eligible to benefit from SBA programs.
Why are these new rules big news for those who lease space to the federal government? Larger lessors must fill out small business subcontracting plans each time they execute a lease with the GSA, in which they agree to contract a certain percentage of the construction costs and operations expenses with small business contractors. Increasing the size limits for those firms will vastly expand the pool of qualified subcontractors. In addition, it will increase the number of lessors that will qualify themselves as small businesses, which will exempt them from having to fill out a subcontracting plan in the first place.
For brokers these new size standards have meaning as well. The previous $2.0 million annual revenue cap was notoriously restrictive making it difficult for GSA’ four national brokers (all large firms) to find qualified small brokers to execute GSA tenant rep deals. The volume of subcontracting required under the GSA National Broker Contract is so great that it can’t be managed through just one or two small business partners–they would very quickly blow through the revenue threshold. The large size limit should provide some relief.