In response to an official request by Mayor Gray and effective May 23, 2012, GSA has expanded the District of Columbia’s Central Employment Area (CEA) to include the St. Elizabeths East Campus and the Capitol Riverfront Business Improvement District (highlighted in yellow) paving the way for federal agencies to locate there.

While the existing office supply in these two areas is very limited, Mayor Gray is hopeful that their inclusion will ultimately result in new economic development similar to the growth that NoMa (North of Massachusetts Avenue) experienced after receiving the critical designation.  However, with agencies operating under ever-restrictive budget and austerity measures, it’s unlikely that new development will occur any time soon.

In its comments regarding the expanded CEA, GSA also noted that “future Federal development near the St. Elizabeths Campus could be mutually beneficial to the District and the Federal Government.”  On the face of it, this makes sense.  What remains bewildering, however, is that GSA and the DC Government have not expanded the CEA into the city’s West End/Foggy Bottom submarket.  This area is adjacent to the CBD and it provides a lower cost alternative to the downtown core.  It has existing space available, in buildings owned by landlords searching for ways to generate demand in a sluggish market.  Further, it directly serves the State Department headquarters. The State Department has been the one federal agency to regularly lease outside the CEA. Why not further expand the CEA?

U.S. Postal Service Headquarters at L’Enfant Plaza, Washington, DC (photo: Coolcaesar at en.wikipedia)

The fiscal woes of the U.S. Postal Service (USPS) have been widely documented, discussed and dissected in recent years. The most recent 10-K posted by the USPS notes that it has accumulated a net deficiency of $25.4 billion, intensifying the urgency to find a solution. The USPS, for its part, has proffered numerous plans to reinvent itself, most of which have included the closure of hundreds or thousands of postal facilities. The standard logic underpinning these plans is that that many post offices – especially those located in rural areas – are unprofitable. The USPS contends that other locations could benefit from consolidation, shedding obsolete and underutilized properties and reducing personnel and related expenses.

There have been a variety of proposals (and counter-proposals) to close postal facilities, to the point where it has become nearly impossible to understand exactly which strategy is currently in play. The confusion regarding the USPS’ closure program has become so acute that the Congressional Research Service (CRS) recently issued a report for members of Congress to address common questions about the closure process. Yet, even the CRS is stymied in it’s effort to answer the biggest question, conceding that “how many post offices may be closed remains unclear”. The CRS report, nonetheless, is an excellent summary of the issues surrounding post office closures, a must-read for anyone following the subject.

For those who prefer the “Cliff Notes” summary, here are the key take-aways (stats are abstracted from the CRS Report, USPS 10-K and 10-Q filings and other sources):

  • The Postal Service has, generally speaking, five types of retail postal facilities: main post offices, post office branches, post office stations, community post offices and contract postal units.  The USPS today owns and leases between 33,000 and about 35,000 such facilities, depending upon your data source (in addition the USPS also maintains a network of 461 distribution facilities, also planned for closures).
  • In many respects, the downsizing of the Postal Service began decades ago. In 1971 there were 42,287 retail postal facilities and at the end of FY 2011 there were 35,119, according to CRS data.
  • USPS’ plans to close its retail facilities have shifted like the sands.  In May 2009 the USPS announced plans to close up to 3,105 retail facilities. In July 2011 the USPS announced its more ambitious plan to close 3,652 post offices but it appears that between 280 (CRS report) and 430 (according to the Postal Regulatory Commission) were closed.
  • Congress has weighed in, offering various legislative initiatives to reform the Postal Service.  Most of these, frankly, are designed to restrict the USPS’ ability to shutter its post offices. Feeling the pressure from Congress, at the end of last year the USPS decided to suspend its post office closures until May 15, 2012.
  • In May, the USPS announced a different plan to reduce hours at its rural postal facilities in lieu of outright closures. As the CRS report observes, it’s presently unclear whether the USPS also plans to proceed with closures of facilities identified in its 2009 and 2011 lists. What is clear is that they are currently marketing some facilities for sale.

Colliers today released its Q1 report profiling the North America industrial market.  It demonstrates that the overall outlook is bullish for manufacturing, intermodal transportation, port activity, and thus for industrial real estate. The increase in specialized manufacturing has also translated into increased demand for industrial space.

In Q1 2012, there was positive net absorption in North America of 26.6 million square feet. Though Q1 demand for industrial space moderated vs. Q4 2011, industrial vacancy fell to 9.66%—the sixth consecutive drop in vacancy since Q3 2010.

To download a copy of the industrial report click here.

To download a copy of the previously released office report click here.

Rep. John Mica wants to move the FTC into available office space at Constitution Center (pictured above)

House Transportation and Infrastructure Committee Chairman John Mica’s (R-Fla.) plan to transfer the Federal Trade Commission (FTC) headquarters building to the National Gallery of Art (NGA) suffered a blow this week, when GSA Acting Administrator Dan Tangherlini sent Mica a letter and accompanying exhibit (on Tuesday, June 12) informing him that two proposals to move the FTC out of the historic Apex Building either were not physically possible or were too costly. Tangherlini instead proposed relocating FTC employees from leased space at 601 New Jersey Ave., NW, and 1800 M Street, NW, to Constitution Center (400 7th Street, SW) and continuing to house the FTC headquarters at the historic Apex Building.

As we reported in the preceding post, a resolution authored by Mica called for the Apex Building to be transferred to the NGA and for the FTC to relocate to Constitution Center; Mica’s committee had directed GSA to develop a detailed plan for the move. But Tangherlini claimed in his letter that Mica’s proposal is not workable. He said that Constitution Center did not have sufficient space to house FTC employees from all three locations (Apex, 601 New Jersey Ave. and 1800 M Street) or from the Apex Building and 601 New Jersey.

“After extensive discussions with FTC, and an examination of the total available space in Constitution Center … GSA has determined that the first alternative proposed in the Committee’s resolution is not physically possible,” he wrote. Moving staff just from the Apex Building and New Jersey did not make financial sense, he added, noting that “over 30 years it is $171,998,027 more expensive to execute the FTC relocation as proposed in the resolution than it is for FTC to remain in the Apex Building.”

“Given the cost of the alternatives discussed above, GSA’s recommendation and plan is to proceed with consolidating the two FTC leased locations (601 New Jersey Avenue and 1800 M Street) at Constitution Center and continue to house the FTC headquarters components at the Apex Building,” he wrote.

Washington Post reporter Jonathan O’Connell, writing yesterday afternoon for the paper’s “Capital Business” blog, noted that “a spokesman for Mica said the congressman was in Florida and had not yet responded to the letter.” With the House in recess this week, it is unclear when we can expect to see a response.

The historic Apex Building is the object of the power struggle between Rep. Mica and the FTC

Since 2005, House Transportation and Infrastructure Committee Chairman John Mica (R-Fla.) has been attempting to transfer the historic Apex Building from the FTC—which has been headquartered  there since the building opened in 1938 —to the National Gallery of Art (NGA).  Mica, a former real estate developer, claims this would ensure that taxpayers do not have to foot the bill for renovating the aging, federally owned structure (instead, renovations would be funded by private donations) and eliminate the need for the NGA to lease additional space, thus saving taxpayers nearly $300 million. On four occasions Mica has attempted to pass legislation forcing this relocation, yet these previous legislative efforts failed to pass both the House and Senate.

In his most recent gambit, Mica inserted language into Section 24 of H.R. 1734, the Civilian Property Realignment Act—which the House passed on February 7 and referred to the Senate Committee on Environment and Public Works the following day.  This language calls for the transfer of the Apex Building to the NGA, stating that “… not later than December 31, 2012, the Administrator of General Services shall transfer administrative jurisdiction, custody, and control of the building located at 600 Pennsylvania Avenue, NW… to the National Gallery of Art for the purpose of housing and exhibiting works of art and to carry out administrative functions and other activities relating to [its] mission” and that, from the date the NGA occupies the building, it “shall be known and designated as the ‘North Building of the National Gallery of Art.’” The section also requires the NGA to raise private funds to renovate the building, and calls for the FTC to relocate to “not more than 160,000 usable square feet of space in the southwest quadrant of the building known as Constitution Center” that has already been leased (but not occupied) by the Securities and Exchange Commission.

On March 8, Mica’s committee directed GSA, which handles leasing for the FTC, to develop a detailed plan for a new headquarters office at Constitution Center (400 7th Street, SW). It gave GSA 30 days to develop floor plans, set space/employee requirements, and present this information to the committee for approval. An FTC move to Constitution Center would enable the SEC to give up its remaining lease obligations in the building.  After that—and after the scandal over GSA’s lavish spending on a 2010 Las Vegas conference—Mica raised the issue with GSA Acting Administrator Dan Tangherlini at a meeting on April 19, after which Mica said in a statement to Government Executive that “I briefed him on the pending proposal and request regarding the FTC, and given the GSA’s current circumstances, I agreed to allow more time for the agency to respond to the committee’s request for information.” In the meantime, Mica has held up approval of prospectus resolutions as we reported last week.

FTC Chairman Jon Leibowitz

FTC commissioners oppose the proposed transfer and argued, in a March 7 letter to Mica and other committee members, that “to require the agency to move out of its historic headquarters building, which still suits the agency and its mission, would impose well over $100 million in wholly unnecessary costs. This unprecedented giveaway,” the letter continued, “would be completely contrary to the interests of American taxpayers, especially in this time of fiscal austerity.” The commissioners went on to state that “it is completely infeasible for the FTC to shoehorn its entire Washington, DC operation into the available space at Constitution Center.” They sent an additional statement on April 18, in which they once again opposed the proposed move as expensive and wasteful. The American Antitrust Institute also expressed its concerns to the committee in a March 13 letter, noting that “moving the Commission into space that the agency has stated is inadequate for its purposes is likely to harm its mission as well.”

Yesterday, finally, GSA issued the information report Mica requested, yet the report’s conclusions are unlikely to satisfy the congressman.  Now we wonder if prospectuses will be held up further or finally approved.

Riddle: “What goes up and never comes down?”

Answer: “Federal spending”

Federal spending – especially if you measure it in constant dollars – hasn’t ALWAYS increased.  But, let’s face it, it mostly has. As Washingtonians, we’ve grown comfortable in the warm blanket the federal government provides.  Year after year demand, fueled through federal direct spending and contracting, has been the cornerstone of the region’s economy. Now, faced with the prospect of real budget cuts, how will the government’s demand for space respond?

The graph above charts the federal leased inventory in the Washington, DC area superimposed with trend lines for total federal outlays and discretionary spending. The forecast component of the spending trend lines is based upon Congressional Budget Office estimates.

Predicting the future of federal real estate inventory growth is an issue we’ll spend a lot of time on for the remainder of this year and we’ll attempt some more sophisticated analysis than this, but the graph above does provide clues as to where we are headed. Here are a few initial observations:

1. The Department of Defense accounts for more than half of the federal discretionary budget. We know that the DoD budget is forecast to decrease substantially due to sequestration and other cutbacks. In fact, anticipated Defense cutbacks largely explain the dip in discretionary spending that is forecast through 2017.

2. Budget cuts will probably affect the contractor community worse than the government itself, especially so long as the Obama Administration stays in office and “insourcing” continues. The Department of Defense, in particular, fuels much of the region’s contractor community and the steep decline in discretionary defense spending is likely to have a significant impact.

3. Austerity measures – which have bi-partisan support – will put tremendous pressure on the government to downsize. President Obama issued a directive in June 2010 to cut $3 billion in real estate costs (in addition to BRAC-related savings) by the end of this fiscal year; OMB has issued a directive that freezes agencies’ real estate inventories, and; GSA’s oversight committee in the House of Representatives is only approving prospectuses with improved space utilization. Both the Executive and Legislative branches have concluded that federal real estate costs will need to decrease to prepare for a period of intense budget pressure.

4. Federal inventory growth appears to correlate better with total outlays than with discretionary spending. On the face of it, this seems unlikely since most mandatory spending is comprised of entitlement programs (medicare/medicaid  and social security) and interest on the national debt. These things are loosely connected to office space needs. Nonetheless, if we view total spending as an indicator of federal inventory growth (or decline) it looks like we could be headed into a period similar to that of the Clinton Administration when the GSA’s inventory growth was nearly stagnant.

Which federal agency operates the largest social insurance program in the world? The U.S. Social Security Administration (SSA) administers Social Security, the retirement, disability and survivors’ benefits that constitute more than 30% of all federal government expenditures. In 2012, more than 56 million Americans received about $778 billion in Social Security benefits.

The agency’s predecessor, the Social Security Board (SSB), began life as an independent agency when it was established on August 14, 1935, as part of President Franklin D. Roosevelt’s New Deal, with the signing of the Social Security Act. The SSB became a sub-cabinet agency in 1939, when the Federal Security Agency was created. In 1946, under President Harry S. Truman’s Reorganization Plan, the SSB was renamed the SSA. In 1953, the Federal Security Agency was abolished and the SSA was placed under the Department of Health, Education and Welfare, which became the Department of Health and Human Services (HHS) in 1980. In 1994, President Bill Clinton signed into law 42 U.S.C. § 901,  which returned the SSA to the status of an independent agency.

The SSB was one of the first federal agencies to have its national headquarters outside of Washington, D.C., and its adjacent suburbs. It initially was housed in the Candler Building on Baltimore’s harbor because there was no building in the National Capitol Area capable of holding the unprecedented amount of paper records that the SSB would need. Soon after, construction began on a permanent building for the agency in Washington, but by the time the new building was complete, World War II had started, and the building was commandeered by the War Department.

The agency remained in the Candler Building until 1960, when it relocated to its newly built headquarters in Woodlawn on Security Boulevard (Route 122)—which, since it was built and named for the agency, has become a major artery connecting Baltimore with its western suburbs. Because of space constraints and ongoing renovations there, many headquarters employees work in leased space throughout the Woodlawn area. Other headquarters offices are located in Washington, D.C., and Falls Church, Va.

Nationwide, the SSA has more than 80,000 employees who work in a network of 1,300+ field offices located in all 50 states, as well as in Puerto Rico, the Virgin Islands and Guam, plus 140 hearing offices, 37 teleservice centers, ten regional headquarters offices and six program service centers (in New York, San Francisco, Philadelphia, Chicago, Kansas City and Birmingham). It is in the process of building a new $500 million, 400,000-square-foot data center, to be known as the National Service Center, in Urbana Maryland. Today, the agency faces many hurdles, as the older population it serves grows and extensive budget cuts are mandating cuts in staff and field office closings nationwide.

Which federal agency began moving into its current headquarters building on November 22, 1963—the day President John F. Kennedy was assassinated? The Federal Aviation Administration (FAA)—the national aviation authority of the United States—has the power to regulate and oversee all aspects of civil aviation. Its predecessor, the Federal Aviation Agency, was created by the Federal Aviation Act of 1958. With no dedicated office space, employees of the growing agency were housed in several widely dispersed buildings around Washington, D.C., including some “temporary” World War II–era buildings. The agency began to consolidate its employees in the newly completed Federal Office Building 10A (now known as the Orville Wright Federal Building) at 800 Independence Avenue, S.W., on that fateful day in November 1963.

The FAA adopted its current name on April 1, 1967, when it became a part of the newly created Department of Transportation. Its mission is “to provide the safest, most efficient aerospace system in the world. According to its vision statement, it strives “to reach the next level of safety, efficiency, environmental responsibility and global leadership.” Its primary roles include the following:

  • Developing and operating an air traffic control and navigation system for both civil and military aircraft;
  • Researching and developing the National Airspace System and civil aeronautics;
  • Regulating air navigation facilities’ flight inspection standards;
  • Encouraging and developing civil aeronautics, including new aviation technology;
  • Issuing, suspending or revoking pilot certificates;
  • Regulating civil aviation to promote safety, especially through local offices called Flight Standards District Offices;
  • Developing and carrying out programs to control aircraft noise and other environmental impacts of civil aviation; and
  • Regulating U.S. commercial space transportation.

The Obama administration has requested $9.7 billion in funding for the FAA for FY2013, $65 million (0.67%) higher than its FY2012 enacted budget. The agency has about 47,000 permanent employees. In addition to its headquarters offices—many of which are still located at 800 Independence Ave. and in the adjacent Wilbur Wright Federal Building at 600 Independence Ave.—the agency leases more than 200,000 square feet in six buildings in the District of Columbia, the largest block of which is nearly 100,000 square feet at 950 L’Enfant Plaza. Geographically, the agency is divided into nine regions, with regional headquarters in cities from Anchorage to Atlanta. The FAA also operates ten international field offices/units, five aircraft evaluation group offices, and more than 400 air traffic control facilities nationwide. Its two largest field facilities are the Mike Monroney Aeronautical Center at Oklahoma City and the William J. Hughes Technical Center near Atlantic City, N.J.

A recent (June 3) Washington Post article reports that the FAA is considering a major consolidation of its offices in the District of Columbia, and that it is looking into leasing as much as 270,000 square feet in Constitution Center (ironically, the former Department of Transportation headquarters) at 400 Seventh Street, S.W., a building that has been in the news recently because of a dispute between the building’s owner and the SEC (which entered into a lease in 2010 for 900,000 square feet, then determined that it did not need the space).

The FAA also is preparing for an already delayed large-scale consolidation and realignment of hundreds of air traffic facilities – and three of its regional offices. An update on that effort, released last week (May 31, 2012), suggests that the agency needs to develop a complex set of metrics to ensure that this is done in a way that will both save money and prepare the agency for the deployment of the high-tech NextGen system, which will track aircraft by satellite rather than ground-based radios and radar.

The American Recovery and Reinvestment Act (ARRA), signed by President Obama on February 13, 2009, called for major new construction and the energy-efficient modernization of federal office buildings, courthouses and land ports across the country. This article—which profiles the Denver Federal Center Solar Campus—is the second in a series in which we examine some of the projects funded by these stimulus dollars. (The first article appears here.)

The Denver Federal Center (DFC) is located at the intersection of West 6th Avenue and Kipling Street in Lakewood, Colo., adjacent to the foothills of the Colorado Rockies and only minutes from downtown Denver. The 623-acre campus houses 55 federal buildings with a total of 4 million square feet of rentable space. More than 6,000 people work there, for federal agencies that include the U.S. Department of the Interior (and its Bureau of Land Management, Bureau of Reclamation and U.S. Geological Survey), the Department of the Interior, the Department of Agriculture, the Department of Defense and GSA.

GSA used $40 million in ARRA funding to build a large-scale solar energy project at the Denver Federal Center that comprises 35 acres of roof-, ground- and carport-mounted photovoltaic arrays, with the goal of making the facility the most sustainable federal campus by 2020. GSA hired a team of Colorado small businesses to install 34,564 solar panels. The solar panel systems have been tied into the center’s existing electrical distribution system; the seven-megawatt solar array now generates enough power to run the equivalent of 1,050 residential homes, providing more than 15 percent of the DFC’s electrical needs while reducing the demand for common grid-supplied electricity and saving utility costs of more than $700,000 while preventing thousands of tons of greenhouse gases from entering the atmosphere every year. The project was completed last December.

Efforts to install solar panels at the DFC actually began well before ARRA. In 2004, Colorado voters became the first in the nation to pass a statewide renewable energy requirement. Amendment 37 requires the state’s utility companies to provide a percentage of their retail electricity sales from renewable resources. By the year 2020, 10% of all retail electricity must come from renewable resources. To get started on meeting these new requirements, Xcel Energy of Colorado solicited businesses to spark interest in using renewable energy to power their buildings. GSA responded by indicating an interest in building a solar park on six empty acres of land on the DFC campus.  On August 3, 2007, GSA’s Rocky Mountain Region awarded a $6.9 million contract to SunEdison to design and build a solar park at the DFC. That one-megawatt photovoltaic solar park, which aimed to generate nearly 10 percent of the campus’s peak electricity demand, was completed in January 2008. The park now produces 1.6 million kWh of energy per year.

While ARRA funding has helped GSA meet its goal of making the DFC the most sustainable federal campus by 2020, critics are questioning whether the project was worth the high price, given the projected payback period of almost half a century. The federal government estimates the payback period will be 48 years—well beyond what the private sector considers acceptable.

“Clowns to the left of me, Jokers to the right, here I am,

Stuck in the middle with you.”

Once you get a song in your head it’s hard to get it back out.  These Stealers Wheel lyrics certainly resonated when listening to the opening of today’s congressional mark-up hearing.  Of course, we don’t really regard our politicians and bureaucrats as clowns and jokers but among a growing group of landlords its hard to find a charitable way to view the ongoing battle of wills between Congress and GSA. The landlords are stuck in the middle and they are getting very…very… frustrated.

So, what’s happening? A dozen or so prospectuses are languishing on the Hill awaiting House approval and some of those leases are already in holdover. For a brief moment this week landlords celebrated when the House posted its agenda for today’s hearing that included an item to consider these resolutions. Alas, yesterday afternoon that item disappeared from the agenda.

The House of Representatives, Transportation and Infrastructure Committee, opened this morning’s mark-up hearing with the following introduction from Chairman John Mica (R-Fla.):

“We had tentatively proposed to bring up a number of GSA prospectus resolutions today and I have asked that they be removed from the agenda.  Very briefly, the reason I asked for their removal was that the General Services Administration has not complied with a request from the Chair since last November.  I believe they are trying to comply and I’m hoping that they will comply and we will consider their business when we have cooperation from that agency.  The items that are pending and now further delayed – and I view that as their responsibility – are very important and they have physical consequences that are considerable and it is important that this Committee take action on those prospectus in a timely fashion.  I intend to do that but I intend to do it only with their full cooperation”.

Though Mica does not specifically identify which “request from the Chair” he is referring to, we must assume it relates to his request that the GSA prepare an “Information Report” to demonstrate how the Federal Trade Commission can be relocated from its current headquarters at 600 Pennsylvania Avenue, NW and moved into Constitution Center.  This would allow Mica to achieve his ultimate goal of granting FTC’s historic headquarters building to the National Gallery of Art. In March Congress issued this request as a formal resolution; yet, to our knowledge, GSA has not completed the required study and when they do we aren’t encouraged that Mica will like the results.

So, assuming Mica is going to hold up approval of prospectuses until GSA submits to recommend FTC’s relocation, and assuming GSA may not do that, where does that leave the Landlords if not stuck in the middle?