Hensel Phelps was recently awarded the $192 million contract to build a new data center for the U.S. Social Security Administration (SSA)  in Urbana, Maryland. The data center will be constructed on a 65 acre site SSA purchased last Fall.   The 400,000 square foot National Service Center will perform the primary data operations of the SSA, which includes processing payments exceeding $700 billion to nearly 57 million beneficiaries.

In this tight-fisted budget era, its hard to imagine the federal government shelling out the $500 million all-in cost estimated to fully complete this project, but this particular one is funded through the American Recovery and Reinvestment Act of 2009 (the “Stimulus Bill”).  The data center will replace the aging National Computer Center in Woodlawn which was designed in the 1970s.  Substantial completion of the building is expected by Fall of 2014, and IT systems installed and operational two years later.

U.S. Customs and Border Protection (CBP) is one of the largest and most complex components of the Department of Homeland Security (DHS). It also is the largest law enforcement agency in the United States, with a workforce of more than 58,000 employees, including officers and agents, agriculture specialists, aircraft pilots, trade specialists, mission support staff, and canine enforcement officers and agents. It was created on March 1, 2003, and incorporates what formerly were the separate U.S. Customs Service, Border Patrol, and the Department of Agriculture’s Animal and Plant Health Inspection Service (APHIS). In addition, CBP took on the inspection functions of the U.S. Immigration and Naturalization Service. While the agency’s primary mission is to keep terrorists and their weapons out of the United States, it also is responsible for apprehending other individuals attempting to enter the country illegally; stemming the flow of illegal drugs and other contraband; protecting agricultural and economic interests from harmful pests and diseases; protecting American businesses from intellectual property theft; and regulating and facilitating international trade, collecting import duties, and enforcing U.S. trade laws. In 2010, CBP officers at more than 330 ports of entry inspected 352 million travelers and more than 105.8 million cars, trucks, buses, trains, vessels, and aircraft.

CBP’s headquarters are located at 1300 Pennsylvania Avenue, N.W., in Washington, D.C. Although the agency’s headquarters were scheduled to move (in 2016) to the new consolidated DHS headquarters complex on the site of the St. Elizabeths campus, during the third phase of this major construction project, federal budget cuts have made that move unlikely for the foreseeable future.

CBP also maintains 20 U.S. field operations offices that provide centralized management oversight and operational assistance to 327 U.S. air, land, and sea ports of entry. The CBP Field Operations Academy, which trains CBP officers and agriculture specialists for international airports, seaports and land border crossings, and other assignments worldwide, is located at the Federal Law Enforcement Training Center in Glynco, Georgia. All border patrol agents are trained at the Border Patrol Academy in Artesia, New Mexico, which also is a component of the Federal Law Enforcement Training Center. Other CBP properties include the U.S. Customhouse in San Francisco, which was among the first construction projects undertaken after the 1906 earthquake and fire. The building, which was named to the National Register of Historic Places in 1975, recently celebrated its centennial, and continues to house CBP activities.

If you find yourself working on a large lease transaction, you’ll eventually hear the term “Prospectus”.  The Prospectus refers to the document that GSA produces each time it seeks to execute a lease over a specified dollar threshold.  This document requires review by the Office of Management and Budget (OMB) and, most significantly, Congressional approval.  As you can imagine, the entire process can easily take 18 months, if not much longer.

The current prospectus threshold is $2.79 million in annual rent.  That figure includes net rent, real estate taxes and amortized tenant improvements but it does not include the cost of most other operating expenses.  If the government intends to execute a lease – even a renewal – at an average annual cost above this prospectus threshold then Congress must approve it first.

The Prospectus document also sets the maximum full-service rent that the government is allowed to pay for its leased space.  This rental amount is expressed both per rentable square foot and in the annual aggregate.  In order to comply with the Prospectus, lessors must supply space at pricing that is under the maximum for both figures.

When you consider that the Prospectus is expressed as an average annual rent, the caps are sometimes restrictive.  For example, in Washington, DC the Prospectus cap is currently set at $49.00, full service, for most lease transactions.  In the city’s CBD and Downtown submarkets, this rent is already below market, a problem which is further compounded by the fact that the Prospectus is expressed as a flat rent while market rents inevitably have an annual escalation factor.

Lessors need to understand the implications of the Prospectus process when addressing large leases and government agencies need to consider the impact as well, especially as they plan for leases at points in the market cycle where rents are on the rise.

OK, so the Postal Service isn’t expanding – quite the opposite.  But, with all of the recent discussion of the decline of the U.S. Postal Service, we were intrigued by the attached, very cool, graphic illustrating the dramatic Post Office expansion from 1700 – 1900 (the Postal Service was officially formed in 1775 with Benjamin Franklin appointed as its first Postmaster General).

As you would expect, it is representative of the larger demographic trends experienced by our growing nation, namely:

  • 1776 – Post-Revolutionary War East Coast Expansion.
  • 1848 – First offices established on the west coast with the start of the Gold Rush.
  • 1870s – Growth along the railroad lines in Nebraska and Kansas.
  • 1890s – A series of land rushes throughout Oklahoma and the midwest.

For more detailed information, check out Derek Watkins cartography blog.

The General Services Administration (GSA) is typically referred to as the landlord for the federal government.  On behalf of federal agencies it leases 191 million square feet in roughly 8,700 office, storage, lab and other types of leased locations across the United States and its territories (figures from when we conducted this analysis at the beginning of this year).  The map below highlights those space concentrations.

It’s no surprise that federal leased space roughly matches the distribution of population in the United States.  Also, it’s logical that the largest concentration of federal space is in Washington, DC.  What may be interesting, however, is that there are significant concentrations of leases in markets such as Kansas City, Phoenix, Albuquerque, Minneapolis and Cinncinnati, among others; and the major “NFL cities” are all well-represented.

The Department of State finally executed its long-awaited consolidation lease at 600 19th Street, NW in Washington, DC.  The consolidation will merge the State’s Consular Affairs and Administration Bureaus from eight locations in Foggy Bottom and Rosslyn into this single address.  State will occupy the entire 456,587 RSF building (net of retail), which is owned by The World Bank.

The lease, reportedly signed on December 29th is the largest lease GSA completed for new space last year.  The lease is also among the first large leases to be implemented under new Congressional austerity guidelines.  The House Transportation and Infrastructure Committee had inserted into the Prospectus the specific qualification that State agree to a maximum space utilization of 156 usable square feet per person.

Government real estate at the federal, state and local level is roughly estimated to comprise 6 billion square feet in the United States and its territories.  Colliers International Government Solutions operates in this space daily, advising both private landlords and public agencies on issues related to the real estate leasing, sales and policy matters unique to the government sector.  CapitolMarkets.com is the vehicle by which we can share our views with a broader audience and we invite you to contact us if you ever need additional information, or if you just want to chat.