Insight Into the Next Two Years of Federal Leasing

This past week I was treated to two events that provided great insight into what can be expected from the 113th Congress. The first of these was a February 26th Capitol Hill reception hosted by the House Transportation and Infrastructure Committee, an opportunity to meet committee members and staff, including Rep. Lou Barletta (R-Pa.), the new Chairman of the Subcommittee on Economic Development, Public Buildings, and Emergency Management. I left with the clear understanding that the House will continue to apply pressure from the Transportation and Infrastructure Committee to force greater space utilization and real estate cost savings on executive branch departments. This was evident in a mark-up hearing just two days later (on Feb. 28th) where the same committee approved 16 lease prospectuses, but only after mandating that the cost of these contracts be reduced by $27.6 million annually for a total savings of $357 over the combined term of all 16 leases. This effort at cost reduction is not new–it is simply a renewed proclamation that the mandates imposed by this committee in the 113th Congress will be a lot like the 112th.

The second event was the National Federal Developers Association (NFDA) conference held on February 28th. Among the speakers was Dan Mathews, the Staff Director for the Subcommittee on Economic Development, Public Buildings, and Emergency Management. Mathews’ senior staff position ranks him among the more influential figures in federal real estate and his comments directed at GSA were pointed, direct and not unexpected. He described the current environment on Capitol Hill as the “new normal” where every prospectus presented to his subcommittee must demonstrate space reduction and better utilization rates.

He also encouraged GSA to improve its capacity to take advantage of market conditions and he noted that the committee is looking for ways to simplify and accelerate the leasing process so it doesn’t take so long from the genesis of requirement to lease execution. Streamlining (or simply accelerating) is critical because more than one-third of all GSA leases are scheduled to expire before the end of next year (a condition that, by the way, has become perennial) yet very few prospectuses have reached the Hill for consideration. This has, indeed, become a major problem and GSA has often found itself needing to run lease procurements concurrent with the prospectus authorization process, which is a risky approach.

One such case is the Fish and Wildlife Service (FWS) procurement. The resolution approving this lease prospectus was just issued this past week yet the procurement process began last April. What started as a 223,000 RSF lease requirement was reduced by 40,000 RSF in response to Congressional oversight after two rounds of offers had already been submitted by lessors. This unanticipated reduction is large enough that it exposed GSA to protest from lessors who may have originally submitted an offer at the smaller size.  It’s a tough way to do business.

To meet the challenge, Mathews recommends greater utilization of the GSA’s national brokers, noting that “GSA has this low-cost workforce sitting on the sidelines”. The lessors in attendance may harbor a very different opinion about whether the broker contract comes without cost but there is no doubt that GSA has often squandered fabulous opportunities due to a lack of capacity–or will–to fully explore them. Rarely, for example, have we seen strategic “blend and extend” transactions (superseding leases in GSA parlance)*.

In fact, Mathews and his House subcommittee would like to see GSA do a lot more on all fronts. Despite the House’s indictment of GSA’s capabilities, it seeks to further centralize leasing control under the agency. This means that independent agencies may ultimately lose their leasing authority. In the House’s view, GSA provides an important control mechanism on the federal leasing process.

The House also intends to continue its pursuit of civilian BRAC legislation that was originally introduced a year ago but died when the lights went out on the 112th Congress. Rep. Jeff Denham, the original sponsor of that legislation, recently re-introduced it as H.R. 695.  This bill seeks to dispose of unneeded federal buildings but it also seeks to reduce the federal government’s reliance on leased space. That ambition has always been a concern for lessors, yet Mathews also pointed out that realistically he did not expect to see GSA’s appropriations increase anytime soon. If that is the case, the cash strapped agency will continue to require leased space.

 * We have long theorized that “blend and extend” transactions must be carefully administered to keep from running afoul of Competition in Contracting Act (CICA) provisions. This may ultimately prevent their widespread use and that’s a topic we may explore in the future.

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