On February 8th, Congressman Lou Barletta introduced a new bill (H.R. 4487) known as the Public Buildings Reform and Savings Act of 2016. Some aspects of the legislation relate to the Federal Protective Service and economic development partnerships, but in this short summary we will only focus on the contents of the bill that could affect the federal leasing market. The goals of the new procedures set forth in H.R. 4487 are identical to those enumerated in H.R. 2322, which was introduced in 2015 but never enacted into law, and are as follows:

(1) reducing the costs to the Federal Government of leased space, including—

(a) executing long-term leases with firm terms of 10 years or more and reducing costly holdover and short-term lease extensions, including short firm term leases;

(b) improving office space utilization rates of Federal tenants; and

(c) streamlining and simplifying the leasing process to take advantage of real estate markets; and

(2) significantly reducing or eliminating the backlog of expiring leases over the next 5 years.

The key components of the legislation pertain to the acquisition of small leases, prospectus-level projects, GSA’s exchange authority and the Department of Energy (DOE) Headquarters in Washington, DC.

Background

  • GSA’s inventory includes approximately 8,323 leases totaling 190 MSF.
  • More than 50 percent of these leases are set to expire over the next 5 years.
  • GSA is overworked and needs help eliminating the backlog.
  • GSA continues to lower utilization rates and reduce its leased footprint.

Simplified Lease Acquisition

Mr. Barletta’s legislation directs GSA to implement a 5-year pilot program using “special simplified procedures” to address leases that fall below a Simplified Lease Acquisition Threshold (defined as any lease with an annual rental obligation of less than $500,000, net of operating expenses). According to the Government, 87 percent of all GSA leases fall under this threshold. We estimate this 87 percent covers 58 MSF, or 30 percent of the total square footage under lease. While we are not certain what form the GSA’s pilot program would take if this bill becomes law, one logical solution might be to utilize the GSA’s existing AAAP system as a mechanism to handle the growing backlog of expiring leases.   

For one, the AAAP has proven to be effective and is already up and running on a national basis. Second, the AAAP accelerates the procurement process and would allow GSA to take advantage of the tenant-favorable market conditions that exist today. Third, the program allows landlords to submit offers for 10-year firm term leases (new or succeeding), in accordance with the goals of this legislation.

In most cases, the landlord community welcomes the push for longer lease terms. Firm, long term lease contracts with the federal government typically offer landlords stability, higher market valuations and open up a variety of opportunities for financing, disposition and capital investment into a property. On the other hand, short term lease extensions or holdovers essentially “kill” a property from a financing or sale perspective, remove a landlord’s incentive to invest in upgrades and ultimately result in an inferior working environment for the end users and a higher rent bill for the U.S. taxpayer.

Prospectus-Level Leases 

H.R. 4487 would allow GSA to bundle multiple projects into a single prospectus, with conditions imposed to ensure greater efficiency and lower utilization rates (