GAO-20-181, GSA LEASING: Improving Stakeholder Outreach and Lease Model Evaluation Could Enhance Competition

GSA LEASING

Improving

Stakeholder Outreach

and Lease Model

Evaluation Could

Enhance Competition

Report to the Committee on

Transportation and Infrastructure,

House of Representatives

December 2019

GAO-20-181

United States Government Accountabilit

Office

______________________________________ United States Government Accountability Office

December 2019

GSA LEASING

Improv

ing Stakeholder Outreach and Lease Model

Evaluation

Could Enhance Competition

What GAO Found

Stakeholders, including 20 lessors (e.g., building owners) and the six real-estate

brokers that negotiate federal government leases, identified several aspects of

the General Services Administration’s (GSA) leases that can affect cost and

competition. For example, specific lease requirements such as early termination

(see table) can lead lessors to increase their rent rates or decide not to bid on a

lease—thereby increasing federal leasing costs or decreasing competition.

According to GSA officials, many of these lease aspects reflect contracting policy

rather than being required by law, regulation, or executive order. GSA has made

some changes, such as lengthening the term of some leases, to address

stakeholder concerns. Stakeholders also identified the time it takes to complete a

lease and GSA’s propensity for staying in a space beyond the term of a lease as

increasing costs and making GSA leases less attractive to potential bidders.

Examples of Requirements That Stakeholders Cited as Affecting Cost and

Competition for the General Services Administration’s (GSA) Leases

Requirement

Description

Early termination

Gives GSA the option to terminate the lease after a set period of

time; this option increases a lessor’s risk of a vacancy.

Tenant

substitution

Allows GSA to substitute the originally intended tenant agency in a

building for another agency with a potentially very different mission.

Janitorial and

maintenance

Stipulates stringent intervals and requirements for cleaning and

maintenance services—more so than typical non-government leases

Source: GAO analysis of stakeholder information. | GAO-20-181

Note: This table represents selected stakeholders’ views on a sample of leases.

GSA has undertaken initiatives to identify stakeholders’ concerns to inform its

reform efforts, but it lacks complete information to address concerns or evaluate

its efforts. Specifically, GSA has not gathered information from a representative

group of lessors because its recent outreach has involved two industry groups

that focus primarily on organizations such as real estate brokers and investment

trusts that are experts in GSA leasing. These organizations may not have the

same concerns as smaller, less experienced, organizations. By obtaining

information from a broad spectrum of stakeholders, GSA would be better

positioned to know whether its leasing reforms are addressing stakeholders’

concerns. Additionally, to expedite processing of lower-value leases, GSA

developed a simplified lease model that excludes some requirements that

stakeholders identified as challenging but may protect GSA, such as tenant

substitution. GAO found that for fiscal years 2016 to 2018, GSA used the model

for only about one-third of potentially eligible leases. GSA has proposed

increasing use of the model, but it does not know whether the model as currently

used is achieving the anticipated benefits, including reduced lease processing

times, or the impact of financial or other risks from this model because GSA has

not evaluated its use. Without such an assessment, GSA does not have the

information needed to determine whether the simplified lease model is achieving

its intended results, whether to make improvements, or how to mitigate any risks.

Why GAO Did This Study

As the federal government’s landlord,

GSA works with lessors and real estate

brokers to identify space for other

federal agencies to use. As part of this

process, GSA uses leases that include

requirements not commonly used in the

private sector. These requirements and

GSA’s lengthy and complex leasing

process can affect federal leasing costs

and competition for leases.

GAO was asked to review issues

to cost and competition for GSA leases

with private sector lessors. This report

examines: (1) lease requirements

selected stakeholders identified as

affecting cost and competition and steps

GSA has taken to address stakeholders’

concerns, and (2) how GSA has

identified stakeholders’ concerns and

evaluated its simplified lease model.

GAO reviewed pertinent federal statutes

and regulations and GSA’s contracting

policy and leasing data from fiscal years

2016–2018. GAO conducted interviews

with 20 GSA lessors selected from

GSA’s data to represent a range of

location, and cost of the leases and the

six real estate brokers that work with

GSA.

What GAO Recommends

GAO is making three recommendations,

including that GSA: (1) expand its

outreach as appropriate to obtain

feedback from lessors that are

representative of its entire lease

portfolio, and (2) evaluate whether the

simplified lease model is achieving its

intended results. GSA agreed with the

recommendations and said it believes

there are additional opportunities to

expand its outreach efforts and evaluate

the simplified lease model.

View GAO-20-181. For more information,

contact

Lori Rectanus at (202) 512-2834 or

rectanus[email protected]

Highlights of GAO-20-181, a report to the

Committee on Transportation and Infrastructure

House of Representatives

Page i GAO-20-181 GSA Leasing

Letter 1

Background 4

Selected Stakeholders Identified Several Aspects of GSA Leases

That Affect Cost and Competition, and GSA Has Taken Some

Steps to Address These Concerns 9

GSA Does Not Have Complete Information to Address

Stakeholder Concerns and Assess Its Simplified Lease Model 22

Conclusions 27

Recommendations for Executive Action 28

Agency Comments 28

Appendix I Objectives, Scope, and Methodology 30

Appendix II Comments from the General Services Administration 35

Appendix III GAO Contact and Staff Acknowledgments 37

Tables

Table 1: Examples of Differences between the General Services

Administration’s (GSA) Leases and Typical Commercial

Office Space Leases 7

Table 2: General Services Administration (GSA) Leases Under

$150,000, Using the Global and Standard, and the

Simplified Lease Models, Fiscal Years 2016–2018 25

Figures

Figure 1: The General Services Administration’s (GSA) Typical

Lease Acquisition Process 5

Figure 2: Automated Advanced Acquisition Program Leasing

Process Used by the General Services Administration

(GSA) 6

Contents

Page ii GAO-20-181 GSA Leasing

Abbreviations

AAAP Automated Advanced Acquisition Program

FBI Federal Bureau of Investigation

FWS Fish and Wildlife Service

GSA General Services Administration

ICE Immigration and Customs Enforcement

IRS Internal Revenue Service

SSA Social Security Administration

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Page 1 GAO-20-181 GSA Leasing

441 G St. N.W.

Washington, DC 20548

December 18, 2019

The Honorable Peter A. DeFazio

Chairman

The Honorable Sam Graves

Ranking Member

Committee on Transportation and Infrastructure

House of Representatives

The General Services Administration (GSA) serves as the federal

government’s landlord and has the authority to lease properties for use by

other federal agencies. As of fiscal year 2019, GSA leased nearly 188

million square feet of space from private sector building owners—known

as “lessors”—for a total of $5.7 billion to accommodate the needs of

federal agencies. These leases come with requirements not commonly

used in the private sector, such as allowing for tenant substitution during

the term of the lease and requiring the responsible lessor to pay for

services such as utilities. These leases also involve lengthy

negotiations—at times longer than a year—to finalize the lease. While

lessors have traditionally valued GSA leases for the government’s reliable

credit and stable tenancy, stakeholders such as lessors and real estate

brokers have raised concerns that the additional requirements and a

lengthy process increase the lessors’ costs, which they then pass through

to the federal government. GSA has sought input from stakeholders to

identify areas where its lease requirements may be increasing costs or

affecting lessors’ willingness to compete for leases as well as to inform its

reform efforts. In response, GSA made some changes to its lease

requirements and developed a simplified lease model as a faster and

more efficient way to process lower value leases. However, questions still

remain as to whether its lease requirements are increasing costs or

affecting lessors’ willingness to compete for leases.

You asked us to review issues related to cost and competition for GSA

leases with private sector lessors. This report examines

• lease requirements selected stakeholders identified as affecting cost

and competition and steps GSA has taken to address stakeholders’

concerns, and

• how GSA has identified stakeholders’ concerns and evaluated its

simplified lease model.

Letter

Page 2 GAO-20-181 GSA Leasing

To address both objectives, we collected information from stakeholders

including current GSA lessors and real estate brokers to obtain their

perspectives on GSA leases and the GSA leasing process. We selected a

non-generalizable sample of 20 current GSA lessors by first obtaining

data from GSA on each of the leases it entered into during fiscal years

2016 to 2018, the most recent data available. We assessed the reliability

of this data by reviewing documentation, interviewing GSA officials,

electronically testing the data, and verifying data with GSA officials. We

concluded that the data were reliable for the purposes of our reporting

objectives. We used this data to group GSA’s leases into three categories

based on total annual rent and then selected leases randomly from each

group.

To obtain a broader perspective on GSA’s leasing process, we

also interviewed the six real estate brokers who participate in GSA’s

Leasing Support Services program, and four other experts on the GSA

leasing process, such as professional organizations who represent

building owners.

We used a semi-structured interview format with open-

ended questions and conducted a content analysis of the lessors’

responses to identify recurring themes. The information gathered from our

interviews with these stakeholders is useful in illustrating a range of views

on the GSA leasing process but is not generalizable.

To identify the lease requirements these stakeholders identified as

affecting cost and competition and what GSA has done to address their

concerns, we selected the eight most commonly mentioned requirements

and the most commonly mentioned areas of GSA’s leasing process

based on responses from both the lessors and the brokers. We grouped

the lessors by those who told us they had experience with three or more

GSA leases—we called these “more experienced” lessors—and those

who told us they had experience with one or two leases—we called these

“less experienced” lessors. To identify the source of the GSA

requirements stakeholders identified, we interviewed GSA officials and

reviewed GSA documentation as well as laws, regulations, and executive

To ensure that our sample included lessors with a range of experience with GSA leases,

we also checked that these leases had similar characteristics to GSA’s total population of

leases in other important characteristics such as lease model used and GSA region. We

excluded leases that used models designed for specific lease products such as leases for

parking structures or leases for on airport properties, and we also excluded leases where

GSA had entered into a new lease that superseded or succeeded a lease that had already

been established under a different model.

In the GSA Leasing Support Services program, GSA uses commercial real estate

brokers to perform a variety of tasks in the leasing process, including negotiating leases.

Page 3 GAO-20-181 GSA Leasing

orders that governed GSA’s use of these requirements. To determine

how GSA and tenant agencies develop space requirements—one of the

requirements stakeholders identified as having effects on cost and

competition—we selected a non-generalizable sample of five executive

branch bureau-level and independent agencies to include those with the

greatest number of GSA leases entered into during fiscal years 2016–

2018. These agencies were (1) the Fish and Wildlife Service (FWS); (2)

the Internal Revenue Service (IRS); (3) the Federal Bureau of

Investigation (FBI); (4) the Social Security Administration (SSA); and (5)

Immigration and Customs Enforcement (ICE). We reviewed documents

and interviewed officials from each of these five agencies to learn about

how they develop space requirements, work with GSA to identify feasible

properties, participate in the development of the final space design and

construction, and plan for their future leased space needs.

To identify the steps GSA has taken to identify stakeholder concerns and

evaluate its simplified lease model, we reviewed pertinent GSA

documents and interviewed GSA officials. We also obtained views of

lessors and brokers about GSA’s lease reform efforts, including whether

they were aware of the efforts, and what effects they had observed. We

determined how often GSA has used a simplified lease model that

contains fewer of the requirements that stakeholders identified as

concerns. We also assessed the characteristics of the leases for which

GSA used the simplified model, based on the GSA fiscal year 2016-2018

lease data described previously. We analyzed the data to obtain

information about the number of leases that had used each of GSA’s

lease models, and the average rent amounts, size, security levels, and

terms.

We compared GSA’s efforts to identify and address stakeholder

concerns to Federal Standards for Internal Control related to external

communication, and its efforts to assess the simplified lease model to

criteria from our prior work on the use of performance information for

While we were able to compare rental rates and other characteristics of leases

performed under GSA’s standard and simplified lease models, we were not able to assess

the extent to which the lower rental costs might be attributable to the use of the simplified

lease model because there are other factors that contribute to its use that are not included

in GSA’s data. For example, in order for GSA to use the simplified lease model, tenant

agencies must provide fully developed requirements prior to GSA’s advertising the lease.

The data do not include the date GSA received these requirements.

Page 4 GAO-20-181 GSA Leasing

decision-making.

For more information on our scope and methodology,

see appendix I.

We conducted this performance audit from October 2018 to December

2019 in accordance with generally accepted government auditing

standards. Those standards require that we plan and perform the audit to

obtain sufficient, appropriate evidence to provide a reasonable basis for

our findings and conclusions based on our audit objectives. We believe

that the evidence obtained provides a reasonable basis for our findings

and conclusions based on our audit objectives.

GSA serves as the federal government’s primary civilian real property

agent. When GSA does not have available federally owned space that

can meet the needs of federal agency tenants, it leases space for these

agencies in privately owned buildings. The Administrator of GSA

delegates leasing authority to GSA regional commissioners, who further

delegate authority to lease contracting officers.

For leases that GSA procures for tenant agencies, GSA serves as the

lessee and pays rent to the building owner, who serves as the lessor. The

tenant agency pays monthly rent to GSA, which includes a fee for GSA’s

services, and uses the leased space subject to the terms of an occupancy

agreement with GSA. This agreement typically specifies not only the rent

fee but also the amount the tenant agency must reimburse the lessor for

improvements to the leased space—such as changes to walls, electrical

outlets, telephone lines, and secure rooms—these are known as “tenant

Improvements.”

GSA leasing process. GSA uses different processes to carry out the

leasing process depending on the size, cost, and type of the lease. For all

of these processes, the leasing-planning process begins when GSA

receives a request for space from a tenant agency and determines that

See GAO, Standards for Internal Control in the Federal Government, GAO-14-704G

(Washington, D.C.: Sep 10, 2014) and; Managing for Results: Enhancing Agency Use of

Performance Information for Management Decision Making, GAO-05-927 (Washington,

D.C.: Sep 9, 2005).

According to GSA, lease contracting officers are warranted and thus have authority to

obligate the federal government, including executing and administering lease contracts.

Background

Page 5 GAO-20-181 GSA Leasing

fulfilling the request will require leasing space.

According to the typical

process outlined in the GSA Public Buildings Service (PBS) PBS Desk

Leasing Guide, officials work with the tenant agency to define the

requirements for the leased space, including the geographic area in which

GSA will search for available properties. After this initial stage, GSA takes

additional steps to acquire a new lease, see figure 1.

Figure 1: The General Services Administration’s (GSA) Typical Lease Acquisition Process

For certain office space leases larger than 500 square feet, which

represent more than 90 percent of GSA’s leases as of the end of fiscal

year 2019, GSA can deviate from its typical leasing process and instead

use what it calls the Automated Advanced Acquisition Program (AAAP).

GSA began using a predecessor to this program in 1991 in the National

Capital Region only and rolled out the current version to all national

markets in 2015. In this program, instead of GSA’s first proposing

requirements to potential lessors, the lessors first submit offers to GSA for

pre-existing available space, including the space’s size, location, and

features, and the rent amounts the lessor is offering for different lease

durations. Once GSA develops a set of requirements with a tenant

agency, it evaluates these standing offers to eliminate those that would

not meet the space requirements, ranks the bids by present value, and

selects the lowest cost option, see figure 2.

GSA officials clarified from their point of view that while the lease planning process

begins when they receive a request for space from the tenant agency, the lease

procurement process begins once they have finalized the requirements for leased space.

Page 6 GAO-20-181 GSA Leasing

Figure 2: Automated Advanced Acquisition Program Leasing Process Used by the General Services Administration (GSA)

Note: GSA uses this process for new and continuing office-space leases greater than 500 square

feet.

GSA is required to take further steps for high value leases with a net

annual rent above the statutory “prospectus” threshold—adjusted by GSA

to $3.1 million in fiscal year 2019.

For these leases, GSA must submit a prospectus, or proposal, to the

House and Senate authorizing committees for their review and approval.

As of the end of fiscal year 2019, GSA managed 8,045 leases, of which

291, or about 4 percent, had current annual rents above the 2019

prospectus level. These leases, however, accounted for about 41 percent

of GSA’s total annual rent obligations.

GSA leases. GSA leases differ substantially from typical commercial

leases. For example, in a GSA lease, GSA—as the lessee—proposes the

lease requirements. In a typical commercial office space lease, however,

the lessor drafts the lease requirements and proposes them to the

prospective tenant. For additional examples of the differences between

GSA and typical commercial leases, see table 1.

40 U.S.C. § 3307(a) sets the prospectus threshold at $1.5 million for leases; however,

the Administrator of GSA has the authority to adjust that amount annually under 40 U.S.C.

§ 3307(h). Under GSA policy, advertisement for a high-value lease cannot be published

until the Office of Management and Budget has cleared the prospectus and GSA has

submitted the signed prospectus to the House and Senate authorizing committees for their

review and approval. Further, GSA’s policy is to not enter into high-value leases until the

authorizing committees have adopted a resolution approving the project.

Page 7 GAO-20-181 GSA Leasing

Table 1: Examples of Differences between the General Services Administration’s (GSA) Leases and Typical Commercial

Office Space Leases

Category

GSA Lease

Typical Commercial Office Space Lease

Operating costs

The lessor is responsible for providing

services such as utilities, and therefore

estimates future operating costs and prices

those into their rental bid.

The tenant is responsible for utilities and other operating

costs covering tenant space.

Full service

The lessor is responsible for performing

ongoing janitorial and maintenance work on

both common areas and tenant space.

The tenant pays for janitorial services, insurance, and

ongoing maintenance covering tenant space.

Rent escalation

Base rent for the building “shell”—the

building structure and systems—may be flat

or have increases scheduled after a certain

number of years, with operating costs

scheduled to periodically increase at the rate

of inflation.

Annual total rent increases, if any, are specified in the lease.

Rent payment

In arrears

In advance

Holdovers

If a lease expires without a new agreement,

GSA might continue to occupy the space

without a contractual agreement with the

lessor. In this situation it is GSA policy to

continue to pay the rent amount in effect as

of the last day of the lease.

A tenant’s failing to vacate the space on time will pay a

substantial penalty specified in the lease.

Real estate taxes

The lessor is responsible for estimating

future property taxes and including them in

the cost of their bid, and GSA provides a

rent adjustment if the property taxes

increase or decrease after the first full year

of occupancy.

The tenant is responsible for compensating the lessor for all

or a portion of the actual real estate taxes in a given year.

Termination

GSA typically has the right to terminate a

lease early without penalty for any reason

after a certain period of time— usually 5 or

10 years. The period of the lease before this

date is known as the “firm” term, while the

period of the lease between this date and

the ultimate lease expiration is known as the

“soft” term.

The tenant is only allowed to terminate the lease early

without penalty in certain special circumstances such as

damage to the property.

Source: GAO analysis of GSA and industry information. | GAO-20-181

Note: Commercial office-space leases can vary depending on the specific space to be leased and the

needs of the individual lessors and tenants involved. This table provides examples of what selected

industry stakeholders told us was contained within a typical office space lease without special

conditions.

GSA’s lease reform efforts. In 2011, GSA issued a lease-reform

implementation plan in response to comments from lessors and tenant

agencies. In this plan GSA recommended changes including developing

Page 8 GAO-20-181 GSA Leasing

new lease models to better tailor its lease requirements to specific

circumstances, and improving elements of its leasing process.

As part of

this and other initiatives since then, GSA developed leasing products and

tools that it can use in various situations. These include:

• Simplified lease model: GSA developed this lease model for lower

value leases with a facility security level of I or II, and a net annual

rent—total rent minus operating expenses—of up to $150,000.

GSA

designed this model as a faster and more efficient method of

processing lower value leases. As compared to GSA’s standard and

global lease models—which can be used on leases of any size—this

model contains fewer requirements and may not have certain more

complex elements such as annual operating-cost adjustments, real

estate tax adjustments, or an allowance for tenant substitution. In

addition, the model requires GSA and the tenant agency to finalize the

complete set of space requirements prior to GSA’s advertising the

lease, a requirement that eliminates negotiations on the tenant

improvements after GSA awards the lease.

• Net-of-utilities leases: As discussed in table 1, in most GSA leases

the lessor is responsible for paying the utilities, and must estimate

future utility costs as part of its bid for the lease. In a net-of-utilities

lease, the tenant pays the utility costs for tenant space directly. A

2016 GSA study indicated that GSA could achieve savings through

net-of-utilities leases for a small number of leases with certain

characteristics including: the lease being over 50,000 square feet, a

single tenant agency occupying the entire space, the tenant agency

consuming large amounts of energy, and several other factors. GSA

estimates that around 360 of its more than 8,000 leases meet these

criteria.

• Succeeding and superseding leases: In most cases, GSA is

required to conduct a full and open competition for leases. However,

in certain circumstances GSA instead pursues succeeding or

superseding leases.

In circumstances where relocating to a new

GSA, Lease Reform Implementation Report, (Washington, D.C.: April, 2011).

The Facility Security Level is a determination of the risks, such as those from terrorism or

natural disasters, faced by a certain facility, ranging from I (lowest) to V (highest). As of

the end of fiscal year 2019, around 40 percent of GSA’s leases had an annual rent of less

than $150,000.

In a succeeding lease, GSA enters into a new lease for the same space upon expiration

of the old lease. In a superseding lease, GSA begins a new lease for the same space

before the expiration of the old lease, and the new lease supersedes the old one.

Page 9 GAO-20-181 GSA Leasing

leased property would result in substantial relocation or duplication

costs that GSA could not reasonably expect to recover through

competition, GSA is allowed to pursue a succeeding lease, and when

market conditions warrant renegotiation of an existing lease or when

the tenant agency needs to make substantial modifications to a space

before the expiration of a lease, GSA is allowed to pursue

superseding leases.

The GSA leasing stakeholders we spoke with identified some aspects of

GSA leasing that are attractive to potential lessors such as the

government’s good credit and GSA’s long average occupancy.

They

also identified a number of aspects of these leases that they said can

affect their costs and the number of lessors who are willing and able to

bid on a GSA lease. These areas were:

• Structure: overall characteristics of a lease including the volume and

complexity of requirements, and how GSA structures rent payments,

reimbursements for tenant improvements, and provision of services;

• Requirements: specific provisions in the lease such as early

termination, janitorial and maintenance, tenant substitution, and real

estate taxes; and

• Process: the steps lessors must follow to complete a GSA lease,

such as the length of time and GSA’s ability to remain in a space after

the end of the lease.

The stakeholders we spoke with identified a number of benefits of GSA

leasing that are attractive to potential lessors, including the government’s

credit worthiness, long average tenancy in a space, and positive

relationships with GSA and tenant agencies. Eighteen of the 20 lessors

we spoke with identified the government’s credit worthiness as a benefit.

This credit, lessors said, is better than many private sector tenants and

presents lower risks, and some of the more experienced lessors said that

We interviewed 20 current GSA lessors and six real estate brokers who are participating

in the GSA Leasing Support Services contract for a total of 26 stakeholders. In addition,

we identified 12 of the lessors as having more experience with GSA leases, and eight as

having less experience with GSA leases. Both lessors and brokers provided responses

about the requirements in GSA leases and what actions lessors take in response to those

requirements, while only the lessors we spoke with provided responses about the benefits

to GSA leasing and the areas of the leasing process in general that can affect cost and

competition. This results in a different denominator for these topics.

Selected

Stakeholders

Identified Several

Aspects of GSA

Leases That Affect

Cost and

Competition, and

GSA Has Taken

Some Steps to

Address These

Concerns

Lessors Said GSA Leases

Are Attractive because of

Lower Financial Risk and

Stability

Page 10 GAO-20-181 GSA Leasing

GSA leases are an important part of their overall lease portfolios. For

example lessors said that GSA leases represent a reliable revenue

stream and that they are confident they will be paid on time for the full

term of the lease, while for commercial leases—even for large

companies—there is an increased risk of a rent default. Eight of the 20

lessors said that GSA and tenant agencies are relatively easy tenants to

work with once the lease is in place. For example, lessors said the tenant

agencies are very professional, and some of them said that they generally

do not receive many requests for service from the occupying staff. In

addition, seven lessors mentioned GSA’s long average tenancy in a

space, which they said helps with a lessor’s long-term financial stability.

One lessor said that commercial tenants stay on average three to five

years, while their GSA tenants have lease lengths of 10 or 15 years.

According to GSA, agencies occupy spaces leased through GSA for an

average of around 22 years.

Lessor Perspective on GSA Leases

“The government is a Grade A tenant.”

Source: GAO interviews with selected GSA lessors. | GAO-20-181

The lessors and real estate brokers we spoke with told us that the way

GSA structures aspects of its leases can affect cost and competition.

These aspects include the volume and complexity of requirements in the

leases, the way GSA structures rent payments, how GSA defines and

reimburses costs for tenant improvements, and the full service nature of

GSA leases. Many lessors told us that they increase their bid prices in

response to these aspects of GSA leases. GSA officials said that each of

these aspects reflects GSA’s contracting policy, and it is not required to

structure its leases this way by law, regulation, or executive order;

however, they use these requirements to provide additional flexibility in

managing their lease portfolio and reduce risk to the government.

About three-fourths of lessors we interviewed said the volume and

complexity of GSA lease requirements make these leases less attractive

to potential bidders and can result in fewer bidders competing for a

lease.

These lessors further stated that GSA’s leases, in contrast to

many private sector leases, can be quite lengthy—up to 85 pages—and

Sixteen of the 20 lessors we spoke with cited the volume and complexity of

requirements as affecting cost and competition.

Stakeholders Identified

Structural Aspects of GSA

Leases That Can Affect

Cost and Competition

Volume and Complexity

Page 11 GAO-20-181 GSA Leasing

contain many references to other documents that are not included in the

lease text such as a seismic certification, a small business subcontracting

plan, a Department of Labor wage determination, and a foreign ownership

and financing certification.

Lessor Perspective on GSA Leases

“GSA’s lease is three-fourths of an inch thick, has many cross-

references, takes weeks to read, and requires an attorney to

understand.”

Source: GAO interviews with selected GSA lessors. | GAO-20-181

Lessors must look up these other documents to fully understand the lease

requirements, and some of the lessors we spoke to said that it can be

difficult for them to quickly find the most important information. Lessors

also noted that—in response to the volume and complexity of

requirements—they may increase their bid prices. To account for risks

inherent in these complex contracts lessors may also use the services of

legal counsel or other experts, which could also increase costs. GSA

officials told us that in the past several years they have made efforts to

streamline their leases, including by eliminating duplicative or

unnecessary provisions. One lessor told us that GSA has improved its

leases by making them more intuitive and easier to read, a development

that could be helpful for new potential lessors.

About half of the stakeholders we spoke with, including 10 of the 12 more

experienced lessors, said the way GSA structures its rent payments

makes it difficult for these lessors to predict what actual operating costs

will be in the future.

Lessors said that because the shell rent (i.e. the

building structure and systems) portion is typically flat over the firm term

of a lease, and the operating expenses only increase at the consumer

price index’s rate, the rental payments they receive are generally not

sufficient to cover their actual increases in expenses. In addition, these

lessors said that in a GSA lease, the lessor is typically responsible for

providing utility services and that lessors pass these costs through to

GSA as part of the operating cost portion of the rent. In a private sector

lease, these costs are typically the tenant’s responsibility. To account for

these issues, 11 lessors told us that they increase their bid prices to

Fifteen of 26 stakeholders, including 12 of 20 total lessors and three of six brokers

identified the rent structure as affecting cost and competition.

Rent Structure

Page 12 GAO-20-181 GSA Leasing

ensure that they will cover their costs, and two lessors told us that they

would not bid on another GSA lease unless there were additional cost

increases built into the lease. GSA officials told us that structuring rent

payments this way provides GSA with a standardized method for

addressing inflation and budgeting for future rental costs.

Lessor Perspective on GSA Leases

“The way GSA accounts for base rent and operating expenses is

different than in a private sector lease. In our leases, the base rent is

frozen throughout the term of the lease and only the operating

expenses are allowed to increase based on inflation. Because of this,

when preparing a bid we have to estimate operating expenses years

into the future, which can be difficult, and if we guess too low we can

end up losing money on the lease.”

Source: GAO interviews with selected GSA lessors. | GAO-20-181

About one-third of the stakeholders we spoke with said the way GSA

structures reimbursement for tenant improvements is a challenge, and

three lessors said GSA’s requirements for construction standards and

space designs can be difficult to meet.

Stakeholders said that GSA’s

requirement that lessors fund construction costs for tenant improvements

upfront can put financial stress on lessors. For example, stakeholders

said that lessors often must take on substantial debt in order to finance

the construction of the tenant improvements. GSA reimburses lessors for

tenant improvement costs over the firm term of the lease, but lessors told

us that these payments do not begin until after the space is occupied,

which can be delayed by the tenant agency’s changing its requirements.

In prior work we found that this process of paying tenant improvements

over the firm term of a lease increases the overall cost to the federal

government of leasing space, primarily due to interest costs passed

through by the lessors.

In addition, half of the lessors we spoke with

identified challenges with the process of developing and finalizing agency

requirements for leased space, including frequent changes to space

requirements and the need to develop detailed construction information

before bidding on a lease.

Ten of 26 stakeholders, including eight of 20 lessors and two of six brokers, identified

tenant improvements requirements as affecting cost and competition.

See GAO, Federal Real Property: GSA Could Decrease Leasing Costs by Encouraging

Competition and Reducing Unneeded Fees, GAO-16-188 (Washington, D.C.: Jan 13,

2016).

Tenant Improvements

Page 13 GAO-20-181 GSA Leasing

Lessor Perspective on GSA Leases

“At the beginning I had to agree to a certain dollar amount for the

tenant improvements, even though I did not know when the

construction would happen, or how I would get paid back. You can get

paid back in a lump sum, or the tenant improvements can be amortized

over the lease term, but you do not know which it will be at the start of

the process. This makes financing difficult.”

Source: GAO interviews with selected GSA lessors. | GAO-20-181

Six lessors told us that they increase the cost of their bids in part due to

GSA often over-estimating the cost of tenant improvements. This situation

can require a lessor to take out a larger loan than necessary, which adds

financing costs to the project. Lessors said that this situation can also

prevent some potential lessors from bidding if they cannot obtain the

amount of financing GSA requires. Additionally, lessors cited some tenant

agencies’ space requirements which can call for expensive materials or

difficult to construct items. For example, they described leases where

they had to construct multiple restrooms or heating and cooling systems

for small offices that typically house fewer than five employees.

GSA officials told us that they structure the tenant improvements

requirements in this way in order to establish expectations for the lessor.

They said that they rely on tenant agencies to develop initial requirements

for leased spaces, and they work with those agencies on the final designs

and construction standards. We examined space requirements of the five

federal agencies we reviewed that lease large amounts of space through

GSA, and each of these agencies uses standardized guidance such as a

handbook or design guide.

These documents included information on

developing specific requirements for leased space such as identifying the

size of space needed, the types of workspaces used, and sample layouts

for different types of facilities. Officials from these agencies told us that

they use these handbooks as their primary reference when setting

requirements for leased spaces and approving the final designs, and to

develop these handbooks they use agency mission needs, government-

wide security standards, and requirements from laws, regulations, and

executive orders. They said that they generally rely on GSA to provide

These agencies were SSA, ICE, FBI, IRS and FWS.

Page 14 GAO-20-181 GSA Leasing

them with local market information such as the availability of suitable

existing buildings, market rents, and other factors.

About one-third of stakeholders we spoke with identified the full service

nature of GSA’s leases as difficult, time consuming, and expensive—

requiring them to estimate highly variable costs far into the future.

For

example, one lessor spoke of being required to provide all services—

janitorial, maintenance and utilities—which can include simple things like

replacing light bulbs. Further, the lessor has to work around the tenant

agency’s operating hours to provide these services. Five lessors told us

that they raise their bid prices to cover the costs of full service leases

because they are cost and labor intensive. One lessor said that lessors

estimate on the high end of the range to make sure they make a profit.

Lessor Perspective on GSA Leases

“The biggest issue for a potential lessor to consider is how hands-on

they want to be—GSA leases are full service leases requiring lots of

attention.”

Source: GAO interviews with selected GSA lessors. | GAO-20-181

GSA officials told us that they structure leases this way because full

service leases are generally less expensive to the government—avoiding

the administrative burden of having to establish and maintain a contract

for each service and avoiding the risk of higher than expected utility

costs. In 2017, GSA issued guidance to its lease contracting officers on

using net-of-utilities leases—those structured so that the tenant agency

pays the utilities. GSA officials and stakeholders we spoke with told us

that having a tenant agency pay utilities directly gives agencies an

incentive to cut down on energy use and could result in lower costs.

According to GSA, structuring leases as net-of-utilities leases requires

substantial resources to manage and monitor. Therefore, GSA’s current

policy is to use this structure for only certain large, energy-intensive

leases. GSA officials told us they plan to continue using net-of-utilities

leases but do not have plans to expand the program further.

Eight of 20 lessors identified the full service nature of GSA’s leases as affecting cost

and competition. None of the six brokers cited this area.

Full Service Leases

Page 15 GAO-20-181 GSA Leasing

Stakeholders identified a number of specific GSA lease requirements that

they said can affect cost and competition. These requirements include

early termination options, GSA’s unilateral ability to substitute the tenant

agency, provisions for reimbursing real estate taxes, and ongoing

janitorial and maintenance requirements. Most of these requirements are

GSA contracting policy, but the janitorial and tenant substitution

requirements have some elements that GSA says it uses in response to

either a law, a regulation, an executive order, or a combination of these

and other sources.

About two-thirds of stakeholders, including all 12 more experienced

lessors, identified GSA’s including early termination options in leases as

affecting the cost of the leases.

GSA leases typically have a date after

which GSA can terminate the lease with as little as 90 days’ notice, and

since many GSA leases require significant initial capital for construction of

the tenant improvements, some lessors told us they need to take out a

loan using GSA’s future rent payments as the source of repayment.

However, stakeholders and other experts told us that many loan

underwriters will not consider any payments after GSA’s termination right

date due to the risk that the GSA will leave the space, a factor that they

said makes the loans more expensive and difficult to obtain. Nine of the

lessors and two of the other experts we spoke with also said that it was

unlikely GSA would ever exercise its termination options. Four lessors

told us that they increase their bid prices to reflect the increased risk and

expense that the early termination clauses provide, and four lessors and

one broker told us that lessors may not bid on a lease at all if GSA

includes an early termination option.

Lessor Perspective on GSA Leases

“The market, and lenders, look at the firm term as the length of the

lease, and don’t take the soft term into account as GSA does… soft

terms are the biggest structural obstacle in GSA lease requirements. If

GSA included soft terms in leases just for emergencies, rather than as a

matter of practice, the soft terms would not be as much of a problem.”

Source: GAO interviews with selected GSA lessors. | GAO-20-181

Seventeen of the 26 stakeholders, including 15 of 20 lessors and two of six brokers,

identified early termination options as affecting cost and competition. Of the lessors, all 12

of the more experienced lessors and three of the eight less experienced lessors identified

these options.

Stakeholders Cited

Specific GSA Lease

Requirements That Can

Affect Cost and

Competition

Early Termination

Page 16 GAO-20-181 GSA Leasing

GSA officials told us that these options allow them to maintain flexibility

and use space efficiently despite changing tenant agency missions and

space needs. In response to data GSA has collected from AAAP bids

showing that GSA receives lower bids for longer firm-term leases, GSA

has begun lengthening the firm term of its new leases. Specifically, GSA’s

analysis of AAAP bids data showed that for lease offers in fiscal years

2017 and 2018, lessors bid a lower rent amount for a 10-year firm term as

opposed to a 5-year term 96 percent of the time with an average savings

of around 10 percent. GSA officials told us that they have been using

more 10- and 15-year firm terms as opposed to the previous standard

practice of five years. For example, according to GSA, in fiscal year 2014,

19 percent of GSA’s leased inventory had a firm term of 10 years or

more, and in fiscal year 2017, this figure had risen to 26 percent. In

addition, GSA has implemented a lease-term-setting tool, which officials

said will help them lengthen the firm terms of leases where appropriate.

About one-third of the stakeholders we spoke with identified janitorial and

maintenance services as a challenge, and two lessors said that costs for

janitorial and maintenance services can be difficult to estimate.

For

example, one lessor told us that it is difficult to estimate these costs two

years into the future, let alone for the 10 or more years of a GSA lease,

because of changes to local job market conditions and labor laws. In

addition, stakeholders said that GSA leases require more frequent or

comprehensive janitorial and maintenance services than do private sector

leases. For example, lessors said that some cleaning and paint and

carpet replacement intervals were more frequent than the industry

standard. Four lessors told us that they include the additional costs for

these services into the cost of their bids, and some lessors told us that

they include up to 125 percent of their estimated true costs in their bids.

According to GSA, it developed some of these requirements, particularly

those related to specific cleaning products that lessors must use, in

response to a combination of several laws, executive orders, and agency

initiatives or recommendations.

Some of the other requirements, such

Eleven of 26 stakeholders, including nine of 20 lessors and two of six brokers, identified

ongoing janitorial and maintenance requirements as affecting cost and competition.

For example, GSA developed requirements for allowed cleaning and paper products by

following, among other things, recommendations from the Environmental Protection

Agency (Recommendations of Specifications, Standards, and Ecolabels for Federal

Purchasing), a GSA initiative (GSA Order- PBS 1096.1), and provisions from laws

including Title II of the Resource Conservation and Recovery Act of 1976 Pub. L. No. 94-

580, 90 Stat. 2795 (codified as amended at 42 U.S.C. ch. 82).

Janitorial and Maintenance

Page 17 GAO-20-181 GSA Leasing

as the intervals for carpet and paint replacement, are GSA’s contracting

policy, and officials told us that they have remained relatively static since

the 1990’s.

Lessor Perspective on GSA Leases

“In one lease, we found that janitorial services for GSA cost

approximately twice as much as normal cost for a non-GSA lease.”

Source: GAO interviews with selected GSA lessors. | GAO-20-181

About one-third of the stakeholders we spoke with said that lessors—

particularly lessors with multi-tenant buildings—are concerned about

GSA’s ability to substitute one tenant agency for another, a requirement

that can affect competition for leases.

One concern cited was the

possibility of substituting a law enforcement agency (e.g., ICE or FBI) that

may have armed officers into a building previously occupied by an

administrative tenant agency. Another was that increased traffic may

result from substituting a busy public-facing agency (e.g., SSA or IRS)

into a formerly quiet building environment. Stakeholders and other

experts we spoke with said that scenarios like these can affect other

tenants’ willingness to renew leases in a building; however, as we found

in 2016, they also told us that GSA rarely exercises this option.

Two

stakeholders and another expert told us that lessors take specific actions

in response to this requirement, including negotiating with GSA over

modifying this clause, which one said they have been successful in doing.

Federal regulation requires GSA to include this clause in leases with

annual rents above the simplified acquisition threshold unless the lease

contracting officer determines that it would not be appropriate. This

regulation, however, stems from a general GSA statutory authority

regarding federal property.

GSA’s leasing regulations do not require

GSA to use this requirement in leases with net annual rents under the

simplified lease acquisition threshold, but GSA officials told us that as a

Nine of 26 stakeholders, including six of 20 lessors and three of six brokers, identified

tenant substitution as affecting cost and competition.

GAO-16-188.

Specifically, this statutory provision directs the GSA Administrator to prescribe the

regulations considered necessary to carry out the administrator’s functions under title 40

U.S.C. Subtitle I. It does not require GSA to include any specific requirements in its

leases. See 40 U.S.C. § 121(c).

Tenant Substitution

Page 18 GAO-20-181 GSA Leasing

matter of practice they also include it in these smaller leases. GSA

officials told us that GSA, as the lessee, is ultimately responsible for a

lease’s financial obligation, and the ability to substitute tenant agencies

helps GSA mitigate the costs of vacant leased space in the event a tenant

agency chooses to leave a leased property.

Lessor Perspective on GSA Leases

“The substitution of tenant requirement is especially an issue in multi-

tenant buildings, and lenders can have trouble with it as well, but GSA

almost never uses it. Our organization tries to get GSA to modify these

clauses, and we are successful about 50 percent of the time, but this

varies by GSA region.”

Source: GAO interviews with selected GSA lessors. | GAO-20-181

About one-third of the stakeholders we spoke with said GSA’s

requirements for real estate tax reimbursement may lead lessors to

increase their bid prices to account for real estate tax uncertainty.

GSA

reimburses lessors for increases in real estate taxes above a base year—

the first full year after GSA certifies the leased space as fit for occupancy.

Lessors told us that since the date of occupancy is dependent on the

completion of the design and construction process, the duration of which

is difficult to estimate, when setting bids they have to estimate taxes

without knowing the base year. Two lessors told us that when bidding on

a lease they estimate on the high side to make sure they cover their

costs, and another other lessor said that their organization might not bid

on a GSA lease because of issues with the real estate tax requirements.

GSA officials told us that they use these requirements because they allow

GSA to establish the real estate tax base and the portion that GSA will

reimburse. Officials also told us that lessors have told them that their

current approach to tax adjustment places a risk on lessors that may

ultimately get passed on to GSA in the form of higher rent, and at a May

2018 GSA industry event, lessors discussed difficulties with setting the

base year. GSA officials told us that they are developing new

requirements for lease construction that would allow for real estate taxes

to be directly passed through by the lessor to GSA.

Eight of 26 stakeholders, including seven of 20 lessors and one of six brokers, identified

real estate tax requirements as affecting cost and competition.

Real Estate Taxes

Page 19 GAO-20-181 GSA Leasing

Lessor Perspective on GSA Leases

“The base year is often not clearly stated in the lease and is sometimes

mentioned informally (e.g., in emails)…the lessor has no recourse to

negotiate over the tax base year with GSA. It poses one of the biggest

risks and has caused us to walk away from some bids after not being

able to get a clear lease amendment specifying the tax base year.”

Source: GAO interviews with selected GSA lessors. | GAO-20-181

The lessors and real estate brokers we spoke with also identified a

number of general areas of GSA’s leasing process that they said can

increase costs or reduce the number of bidders. These areas included the

length of time it can take to finalize a GSA lease, GSA’s ability to occupy

a space after lease expiration generally without penalty or the payment of

damages beyond continuing rent payments—referred to as a “holdover”—

and GSA’s propensity for entering into short-term extensions for current

leases while negotiating new leases.

About two-thirds of the lessors we spoke with mentioned frustration with

the length of time it takes to finalize a GSA lease.

Lessors told us that

after GSA awards a lease, it can take more than a year of additional

negotiations with the lessor, GSA, and the federal tenant agency to

finalize the design requirements and construct the space. In 2016 we

reported that the total length of GSA’s leasing process could be up to six

to eight years.

Because GSA does not generally begin to pay rent until

after the space is fit for occupancy, lessors said that the length of time it

takes to complete the lease award, design and construction processes

can create financial stress on a lessor. For example, one lessor said that

GSA’s overall leasing process was challenging, and the largest issue,

rather than any particular requirement, was agreeing on the design after

lease award. This length of time was because the tenant agency was

slow to make decisions about the space design, and while GSA tried to

coordinate by setting up weekly meetings about this design among GSA,

the tenant agency and the lessor, there were also several layers of time-

consuming GSA review. About one-third of the lessors we spoke with also

identified challenges communicating with GSA and the tenant agency

during the lease negotiation process, including challenges identifying

Fourteen of 20 lessors we spoke with identified the length of time it takes to finalize a

GSA lease as affecting cost and competition.

GAO-16-188.

Stakeholders Identified the

GSA Leasing Process as

Affecting Cost and

Competition

Length of Time

Page 20 GAO-20-181 GSA Leasing

points of contact and resolving disputes.

Three lessors said that they or

other lessors might not bid on additional GSA leases specifically because

of the lengthy and complex process to finalize a lease. GSA officials told

us that they rely on space requirements from the tenant agency and that

the faster they receive those requirements, the faster the bid award can

be completed and design process finalized.

Lessor Perspective on GSA Leases

“If it were up to me, I wouldn’t bid on any more GSA leases because

they are too time intensive not only for management at our organization,

but also for our accounting, engineering, construction and property

management teams.”

Source: GAO interviews with selected GSA lessors. | GAO-20-181

GSA officials told us that they have been using a number of initiatives to

speed up their leasing process. For example, they said that in response

to these time pressures they have begun requesting requirements as

much as 48 months in advance of when a new lease will be needed.

Officials from three of the five tenant agencies we spoke with told us that

it can be difficult to estimate their space needs so far in advance because

their missions and space needs can change. In addition, since 2015 GSA

has been using the AAAP—in which potential lessors submit standing

bids for vacant space that GSA then matches to requirements for new

and continuing leases—in all of its national real estate markets. Four of

the more experienced lessors we spoke with told us that they had noticed

positive changes as a result of the AAAP. These changes included faster

lease processing times and an overall simpler leasing process with less

negotiating. One lessor told us that they only bid on new GSA leases that

are part of this program.

One-quarter of the lessors we spoke with identified drawbacks associated

with GSA lease holdovers and short-term extensions, and at least three of

the lessors we spoke with had experienced a holdover for one of their

leases.

Lessors said that the possibility of GSA’s holding over in a

space or signing a short-term extension can affect their ability to finance a

Seven of 20 lessors we spoke with identified communications challenges as affecting

cost and competition.

Five of 20 lessors we spoke with identified holdovers and short-term extensions as

affecting cost and competition.

Holdovers and Short-term

Extensions

Page 21 GAO-20-181 GSA Leasing

building and their time frame for finding a new tenant if GSA exits a

property. Lessors also noted communications difficulties with GSA, for

example some said that they had reached out to GSA to negotiate a

lease well in advance of an incumbent lease’s going into holdover, but

this action did not help them get a new lease on time. Lessors told us that

they bid much higher rates for short-term extensions than they do for

leases awarded through the normal process. In 2015 we reported that a

significant number of GSA leases experience a holdover or short-term

extension and that these can cause uncertainty for tenant agencies and

lessors, increase GSA’s workload, and delay the completion of building

maintenance and other tenant improvements.

Lessor Perspective on GSA Leases

“Holdovers and short-term extensions diminish lessors’ opinions of

GSA.”

Source: GAO interviews with selected GSA lessors. | GAO-20-181

Reducing holdovers and short-term extensions is one of the key tenets of

GSA’s 2018–2023 Lease Cost Avoidance Plan. One method GSA uses to

more quickly process leases for tenant agencies remaining in their current

space is the superseding and/or succeeding lease. In 2018 GSA

developed a revised tool to help its officials more quickly estimate

whether GSA would likely achieve lower costs using a succeeding lease

as opposed to performing a full and open competition for a new lease.

Lease contracting officers can use this tool to identify leases that would

be likely candidates for a succeeding or superseding lease earlier in the

process. We analyzed the leases GSA entered into during fiscal years

2016 through 2018 and found about 29 percent of them were succeeding

or superseding leases. GSA officials told us that they have tried to

increase awareness of the new tool and appropriate use of succeeding

and superseding leases through training programs.

We recommended that GSA identify performance goals and targets related to the use of

holdovers and short-term extensions, and in response, GSA included performance

measures and associated targets in its 2016 Public Buildings Service Strategic Business

Plan to measure the extent to which GSA is replacing leases without using holdovers and

short-term extensions. See GAO, Federal Real Property: Performance Goals and Targets

Needed to Help Stem GSA’s Reliance on Lease Extensions and Holdovers, GAO-15-

741(Washington, D.C.: Sep 30, 2015).

Page 22 GAO-20-181 GSA Leasing

GSA began reform efforts in 2011 by conducting outreach, introducing

new lease models, and adjusting some leasing provisions in response to

stakeholder concerns. While GSA has continued its industry outreach, its

more recent outreach efforts have not gathered information from a

representative group of lessors. Further, GSA has not analyzed the

information it does collect and therefore does not know if its reform efforts

are adequately addressing stakeholder concerns. Also, GSA has not

assessed whether one of its reform efforts—the simplified lease model—

is achieving its intended benefits or how it could affect risk.

Since fiscal year 2018, GSA has conducted informal industry outreach to

certain lessors and other stakeholders about the leasing process. These

efforts have included attending and making presentations at industry

conferences, facilitating industry meetings with regional commissioners,

and hosting feedback sessions. For example, in May 2019 GSA gave a

presentation to a large industry organization on the current status of its

efforts to reduce lease costs, and in May 2018 staff participated in a

training event organized by GSA’s Office of Government-wide Policy

where officials from industry shared their experiences with the leasing

process.

GSA officials told us that they gather information primarily from two

industry groups, both of which have reached out to GSA, have a large

number of members that are GSA lessors, and have a significant amount

of knowledge of the GSA leasing process. GSA officials told us that they

have used information mainly from these two groups to inform reform

efforts, including creating net-of-utilities leases and longer firm-term

leases. However, these two groups are focused primarily on

organizations such as real estate brokers and investment trusts that are

experts in the GSA leasing process. These organizations are not

representative of GSA’s total population of lessors, which also includes

many smaller organizations that have less experience with the GSA

leasing process. By focusing its efforts on these larger groups, GSA is

missing the perspective of smaller lessors, whose representatives may

not attend industry meetings.

These smaller lessors may have different types of concerns that GSA is

not capturing. For example, in our sample of 20 lessors we identified

areas where the perspectives of organizations with varying levels of

GSA Does Not Have

Complete Information

to Address

Stakeholder

Concerns and Assess

Its Simplified Lease

Model

GSA’s Recent Stakeholder

Outreach Efforts Are

Limited, and GSA Lacks

Information on Lessor

Concerns

Page 23 GAO-20-181 GSA Leasing

experience with GSA leases differed. More than half of the less

experienced organizations identified experiencing communication

challenges with GSA and the tenant agency, while only two of the more

experienced organizations identified this concern. Concerns about early

termination clauses in GSA leases were cited by less than half of the less

experienced organizations, but all of the more experienced organizations

mentioned this clause as affecting their willingness to do business with

GSA. Also, one of the brokers we spoke with said that smaller lessors

tend to have different concerns about leasing requirements than larger

lessors, but also have less ability to react to those concerns by, for

example, raising their bid prices. In addition to limiting outreach to two

groups that do not represent all types of GSA lessors, GSA has not

maintained official records of the information it receives from these

efforts. Further, it has not analyzed the information that it collects from

lessors and other stakeholders for use in revising the leasing process.

These omissions hinder GSA’s ability to identify the full range of lessor

concerns.

GSA’s recent approach to outreach differs from earlier approaches where

GSA conducted more formal outreach to lessors. For example, in 2011

GSA performed formal outreach in order to inform decisions about

significant changes to its leasing process. Officials told us that they

selected a wide variety of lessors and held formal outreach sessions

where GSA took minutes and maintained a record of all of the comments.

GSA then analyzed the comments and used the results of its analysis to

inform the initiatives it was conducting at that time, including the

development of the simplified lease model. In addition, in 2017 GSA

established the Office of Leasing Industry Outreach Program, which was

a formal program to allow industry representatives to discuss various

leasing issues with GSA officials through conference calls, webinars, and

in-person sessions. GSA conducted nine monthly sessions with this

program in 2017 and kept a formal record of only the first four sessions.

Officials told us that they have since shifted their approach to conduct

outreach more like that conducted by the Office of Government-wide

Policy discussed above.

Federal internal control standards call for agencies to communicate with,

and obtain quality information from, external parties such as stakeholders

that can help the agency achieve its objectives.

While GSA has in the

GAO-14-704G

Page 24 GAO-20-181 GSA Leasing

past collected and analyzed information from a wide variety of

stakeholders to the leasing process, the real estate market is constantly

changing. By obtaining current information from a broad spectrum of

stakeholders and documenting and analyzing the information collected,

GSA would be better positioned to know whether its lease reforms are

addressing stakeholder concerns and how its lease requirements affect

cost and competition.

As previously noted, GSA developed its simplified lease model in 2011 to

simplify the acquisition of smaller value leases with the intent of making

the leasing process more efficient and cost-effective. GSA officials told us

that using this model is also intended to help them achieve other lease

reform goals including reducing holdovers and short-term extensions by

speeding up the leasing process and making GSA leases more attractive

to a wider spectrum of potential lessors. In addition, officials said that they

believe greater use of the simplified lease model would increase

competition for leases, particularly in real estate markets with high

demand for office space. Since initial implementation, GSA has

undertaken initiatives to increase the use of this model, including by

raising the eligibility threshold from $150,000 to $250,000, and GSA

officials told us that they have proposed raising the threshold to $500,000,

a move that would cover more than 70 percent of GSA’s leases.

However, GSA has not performed any analysis on the number of leases

that were eligible for, but did not use, this model.

Using available data, we analyzed the leases GSA entered into during

fiscal years 2016 through 2018 that were potentially eligible for the

simplified lease model and compared those that used the model to those

that used GSA’s global and standard lease models. We found that the

group of leases where GSA had used the simplified lease model had

achieved lower rents both overall and per square foot than the group of

potentially eligible leases where GSA had used its standard or global

models (see table 2).

These leases had lower average costs even

We considered a lease potentially eligible if it had an annual rent amount of less than

$150,000, which was the eligibility threshold at the beginning of fiscal year 2016, and it did

not use one of GSA’s lease models designed for specific situations such as the

succeeding or superseding, parking, or on-airport models. Even though the facility security

level is an additional eligibility requirement for the model, we could not include it in this

analysis because GSA does not have security level information for many of the leases in

this dataset. However, we determined that omitting this data field did not substantially

change the results of this analysis because only a smaller number of leases with costs

below $150,000 also had a facility security level of III or above.

GSA Does Not Know

Whether Its Simplified

Lease Model Is Achieving

Anticipated Benefits

Page 25 GAO-20-181 GSA Leasing

though they had shorter average total terms and firm terms.

This finding

is notable because, according to GSA, longer leases typically have lower

costs than shorter ones. However, our analysis of available data also

found that GSA only used the simplified lease model on 124 of the 406

leases that were potentially eligible, or about 31 percent (see table 2).

Table 2: General Services Administration (GSA) Leases Under $150,000, Using the Global and Standard, and the Simplified

Lease Models, Fiscal Years 2016–2018

Variable

Global and Standard Model

Simplified Model

Total Number of Leases

282

124

Percentage of Total

69.5 percent

30.5 percent

Average Rent per Square Foot

$25.33

$23.16

Average Total Annual Rent

$77,874

$57,628

Average Rentable Square Feet

3,530

2,526

Average Total Term

10.8 years

9.8 years

Average Firm Term

6.1 years

5.4 years

Source: GAO analysis of GSA data. | GAO-20-181

Note: The simplified lease model contains fewer requirements than the global and standard models.

GSA designed this model as a faster and more efficient method of processing lower value leases.

Total excluding leases that used parking, airport, succeeding/superseding, and other models

designed for specific situations.

GSA officials told us that they face two primary challenges in increasing

adoption of the simplified lease model. First, lease contracting officers

must choose to use the simplified model as opposed to GSA’s standard

lease model. While GSA’s leasing policy states that lease contracting

officers should use the simplified lease model to the maximum practical

extent,

the lease contracting officers generally have wide discretion in

selecting the type of lease to use for a particular acquisition. GSA officials

told us that they believe some lease contracting officers may be hesitant

to use the model because it is less familiar to them. GSA officials also told

us that they have provided training for lease contracting officers on the

We were not able to assess the extent to which the lower rental costs might be

attributable to the use of the simplified lease model because there are other factors that

that contribute to its use that are not included in GSA’s data. For example, in order for

GSA to use the simplified lease model, tenant agencies must provide fully developments

prior to GSA advertising the lease. The data do not include the date GSA received these

requirements.

GSA, “Chapter 3: Simplified Lease Acquisition,” PBS Leasing Desk Guide.

(Washington, D.C.: 2011).

Page 26 GAO-20-181 GSA Leasing

appropriate use of the simplified lease model and have encouraged them

to use it.

Second, in order for GSA to use the simplified lease model, tenant

agencies must provide a complete set of space requirements that GSA

can use in a lease solicitation—what GSA calls biddable requirements—

prior to GSA’s advertising the lease. According to GSA officials, tenant

agencies do not always provide these requirements on time. By having

biddable requirements in place before receiving bids, GSA can avoid

negotiating these requirements after the lease is awarded. GSA officials

and lessors told us that not having these requirements in place is a major

source of project delays. GSA tracks both when it receives initial

requirements from the tenant agencies and when the more fully

developed requirements that GSA uses in its standard lease model

solicitations are in place. In order to use the simplified lease model, GSA

and the tenant agency then develop biddable requirements that need

additional detail.

An Example of challenges agencies face in providing lease

requirements to the General Services Administration (GSA):

Officials from three of the five tenant agencies we spoke with told us

that it can be difficult for them to provide GSA with requirements two or

more years in advance because agency missions and space needs

change. For example, Internal Revenue Service officials told us that

providing requirements 36 months in advance of a lease’s expiring is

difficult for them because they may not know what their agency budget

and personnel will be that far in advance. Officials from the Federal

Bureau of Investigation said that lead times greater than three years

are challenging because their agency missions change frequently,

which leads to changing space needs.

Source: GAO interviews with selected GSA lessors. | GAO-20-181

GSA has taken some steps to increase use of the simplified lease model.

For example, several GSA regions have begun to work with SSA on a

pilot program to reduce the time it takes for GSA to complete leases with

that agency, including by increasing the availability of the simplified lease

model. This program is in the early stages and, according to the charter,

developed in August 2019, its objectives are to reduce the total time it

takes to complete leases, increase up-front knowledge of project costs,

and minimize the number of changes needed to leases all while

maintaining or reducing the average costs for these projects. GSA and

SSA plan to accomplish these objectives by identifying the areas of the

Page 27 GAO-20-181 GSA Leasing

leasing process most prone to delays, developing strategies for more

quickly finalizing the complete requirements needed to use the simplified

lease model, and testing the improvements in both large and small real

estate markets. GSA plans to begin testing the changes developed by

this program during the first half of 2020. SSA officials told us that they

typically begin planning approximately 42 months prior to lease expiration

with the goal of providing initial requirements to GSA by 36 months prior.

GSA lacks comprehensive information on the benefits and challenges of

using the simplified lease model because it has not evaluated the results

it has obtained from using it. For example, officials told us that they have

not analyzed the lease processing times or rental rates they have

achieved using the model. Officials also said that they already collect the

data they would need to study the model and they have used this data to

analyze related issues such as lease holdovers and short-term

extensions. Officials also told us that they do not consider use of the

simplified lease model to pose any financial risks provided that lease

contracting officers follow GSA’s existing policies. However, they told us

that GSA has not reviewed financial and other risks that may arise from

using the model. These factors include risks due to the model’s not

containing certain provisions that may protect GSA, such as tenant

substitution. We have reported that agencies can use information about

the performance of programs to identify problems or weaknesses, to try to

identify factors causing the problems, and to modify programs to address

them.

Program assessment helps to establish a program’s

effectiveness. Without conducting such an assessment, GSA does not

have the information needed to determine whether the simplified lease

model is achieving intended results, whether to make improvements, or

how to mitigate any risks.

The federal government spends nearly $6 billion annually on leasing

space from private entities, and GSA has taken steps to encourage

private sector competition for government leases. GSA’s efforts to

address stakeholder concerns with lease requirements have had some

success. Specifically, GSA’s 2011 formal stakeholder outreach and

subsequent development of new lease models and other process

changes have given GSA some options to reduce leases’ complexity and

better tailor leases to the needs of individual projects. However, because

GAO-05-927

Conclusions

Page 28 GAO-20-181 GSA Leasing

GSA’s recent outreach has not included a representative group of its

lessors, and it has not documented and analyzed the information

collected from this outreach, GSA may not have the information it needs

to fully address lessors’ concerns.

Further, the simplified lease model—which GSA developed to address

some of these stakeholder concerns and more effectively use its

resources—has been in use for several years. Given that GSA has

proposed further expanding the use of the model to higher value leases, it

is important to know the results GSA has obtained from using the model,

such as the characteristics of leases for which it achieves the greatest

savings in costs and time, and the extent to which it bears financial or

other risks from its use. Such information would help inform GSA’s future

decision-making on the use of the simplified lease model.

We are making the following three recommendations to GSA:

• The Administrator of the General Services Administration should

expand its outreach as appropriate to obtain feedback from lessors

that are representative of its entire lease portfolio.

(Recommendation 1)

• The Administrator of the General Services Administration should, for

future outreach efforts, document and assess lessors’ feedback about

the leasing process. (Recommendation 2)

• The Administrator of the General Services Administration should

evaluate whether the simplified lease model is achieving its intended

results. (Recommendation 3)

We provided a draft of this report for review to the General Services

Administration, the Social Security Administration, and the Departments

of Homeland Security, the Interior, Justice, and the Treasury.

The General Services Administration concurred with our

recommendations in its written comments, which are reproduced in

appendix II. The General Services Administration and the Department of

the Interior provided technical comments, which we incorporated as

appropriate. The Departments of Homeland Security, Justice, and the

Treasury, and the Social Security Administration had no comments on the

draft report.

Recommendations for

Executive Action

Agency Comments

Page 29 GAO-20-181 GSA Leasing

As agreed with your offices, unless you publically announce the contents

of this report earlier, we plan no further distribution until 30 days from the

report date. At that time, we will send copies to the appropriate

congressional committees; the Administrator of the General Services

Administration; the Secretaries of the Departments of Homeland Security,

the Interior, and the Treasury; the Commissioner of the Social Security

Administration; the Attorney General; and other interested parties. In

addition, the report will be available at no charge on the GAO website at

http://www.gao.gov.

If you or your staff have any questions concerning this report, please

contact me at (202) 512-2834 or [email protected]. Contact points for

our Offices of Congressional Relations and Public Affairs may be found

on the last page of this report. GAO staff who made key contributions to

this report are listed in appendix III.

Lori Rectanus

Director, Physical Infrastructure

Appendix I: Objectives, Scope, and

Methodology

Page 30 GAO-20-181 GSA Leasing

This report examines (1) lease requirements selected stakeholders

identified as affecting cost and competition and steps GSA has taken to

address their concerns, and (2) how GSA has identified stakeholder

concerns and evaluated its simplified lease model.

To obtain information for both objectives, we reviewed laws, regulations,

and executive orders covering GSA leases and GSA’s leasing process.

We also obtained data from GSA on each of the 1,618 leases it entered

into between the beginning of fiscal year 2016 and the end of fiscal year

2018, the most recent data available. This data included fields for the

current annual rent, the size of the lease in rentable square feet, the lease

model GSA used, the facility security level, the occupying agency, and

the lease’s effective and expiration dates, among others. We assessed

the reliability of this data by reviewing documentation; interviewing GSA

officials; electronically testing the data by, for example, examining missing

values and outliers; and verifying the accuracy of potentially erroneous

data with GSA officials. We concluded that the data were reliable for the

purposes of selecting a sample of GSA lessors and reporting on GSA’s

portfolio of leases and the general characteristics of the groups of leases

that used different lease models.

In addition, to address both objectives, we collected information from and

interviewed a non-generalizable sample of 20 GSA lessors to obtain their

perspectives on GSA leases and GSA’s leasing process. To select these

lessors, we used the fiscal year 2016–2018 lease data that GSA provided

and selected leases using the annual rent amount as the primary

selection criteria. We excluded leases that used models designed for

specific lease products, such as leases for parking structures or leases on

airport properties, and we also excluded leases that were successions or

supersessions of leases that had already been established under different

models. To make the selections, we first split the data into three groups

based on annual rent, the first group of leases with annual rents under

$150,000; the second group with annual rents between $150,000 and

below $500,000; and the last group with annual rents above $500,000.

We then randomly ordered the leases within each of the three groups,

We chose these amounts as our cutoffs because $150,000 was the threshold for use of

the simplified lease model at the beginning of fiscal year 2016, and $500,000 is the

amount to which GSA officials told us they are proposing to raise the threshold.

Appendix I: Objectives, Scope, and

Methodology

Appendix I: Objectives, Scope, and

Methodology

Page 31 GAO-20-181 GSA Leasing

and selected 53 total leases in that order from the three groups.

checked this grouping to ensure that the selected leases had similar

characteristics to GSA’s general population in other important lease

characteristics such as lease model used and GSA region. We then

randomly ordered the selected leases and contacted the lessors for those

leases in that order.

We interviewed the first 20 lessors from our selected leases who agreed

to be interviewed. When contacting the lessors we found that in most

cases the lessor named in GSA’s data was a subsidiary to another

organization. In those cases, we interviewed the organization that self-

identified as being responsible for the selected lease, or their

representative. We conducted these interviews between March 2019 and

June 2019 and used a semi-structured interview format with open-ended

questions for those interviews. During these interviews, we asked for

lessors views on the requirements in GSA’s leases that can affect their

willingness to bid on GSA leases and the prices they can offer, actions

they take in response to those requirements, other areas of GSA’s

leasing process that can be difficult for them, the benefits to leasing to

GSA, and their perspectives on GSA’s recent lease reform efforts. To

obtain a broader perspective on GSA’s leasing process, we also

conducted semi-structured interviews on the same topics with six real

estate brokers who are participating in the GSA Leasing Support Services

contract.

We asked the brokers to provide their experiences on which

areas of GSA leases result in the greatest number of cost and

competition issues from lessors, and what the lessors do about those

areas. We also interviewed four other experts on GSA leasing including

professional organizations and attorneys who represent building owners,

and former GSA officials. Although the results of these stakeholder

interviews are not generalizable to the entire population of GSA lessors,

they provide illustrative examples of lessors’ experiences with GSA

leases and the leasing process.

After conducting these semi-structured interviews with lessors and

brokers, we conducted a content analysis of the interview data. To

In order to ensure parity in our sample, we somewhat oversampled the larger leases. In

the random number order, we selected the first 21 leases from the above $500,000 group,

the first 17 leases from the between $150,000 and $500,000 group, and the first 15 leases

from the below $150,000 group.

In the GSA Leasing Support Services program, GSA uses commercial real estate

brokers to perform a variety of tasks in the leasing process, including negotiating leases.

Appendix I: Objectives, Scope, and

Methodology

Page 32 GAO-20-181 GSA Leasing

conduct this analysis, we organized the responses by topic area, and

then one GAO analyst reviewed all of the interview responses and

identified recurring themes. Using the identified themes, the analyst then

developed categories for coding the interview responses and

independently coded the responses for each question. To ensure

accuracy, a second GAO analyst reviewed the first analyst’s coding of the

interview responses, and then the two analysts reconciled any

discrepancies.

To identify the lease requirements that stakeholders we spoke with

identified as affecting cost and competition, we synthesized information

from our content analysis of interview responses to identify the most

commonly mentioned requirements. We selected the eight most

commonly mentioned requirements by summing the total number of

responses from both the lessors and the brokers. As part of this analysis

we also selected the four areas stakeholders most often mentioned as

challenges that were related to GSA’s leasing process, as opposed to a

specific requirement, but that stakeholders nonetheless identified as

having effects on cost and competition. To assess how the responses

from lessors may have differed based on how much experience a lessor

has with GSA, we grouped the lessors we spoke with into two categories.

The first category was those lessors who had told us that they had

experience with three or more GSA leases, we referred to these lessors

as “more experienced,” and the second category was those lessors who

had experience with one or two GSA leases, we referred to those lessors

as “less experienced.” To identify the source of the GSA requirements

stakeholders identified, we reviewed GSA documents and interviewed

officials to learn about each of the requirements. In addition, we reviewed

laws, regulations and executive orders that governed GSA’s use of these

requirements.

To determine how GSA and tenant agencies develop requirements for

leased space—one of the requirements stakeholders identified—we

selected five bureau-level and independent agencies to review how they

develop initial requirements for leased space and how they work with

GSA and the lessor to finalize those requirements. We selected these

agencies by the number of GSA leases they had entered into during fiscal

years 2016-2018, using the lease data for that time period provided by

GSA. We selected the agencies that had entered into the greatest

number of leases, and in order to ensure that we had a diversity of

experiences from across the federal government, and we limited our

Appendix I: Objectives, Scope, and

Methodology

Page 33 GAO-20-181 GSA Leasing

selection to executive branch independent agencies and one-bureau-level

entity from each cabinet department.

Based on these factors, we

selected (1) Department of the Interior Fish and Wildlife Service (FWS);

(2) Department of the Treasury Internal Revenue Service (IRS); (3)

Department of Justice Federal Bureau of Investigation (FBI); (4) Social

Security Administration (SSA); and (5) Department of Homeland Security

Immigration and Customs Enforcement (ICE). While the views of these

agencies are not representative of all executive branch agencies, they

provide a range of examples and experiences with leasing space through

GSA. We reviewed documents and interviewed officials from each of

these five agencies to learn about how they develop requirements for

leased space, how they work with GSA to identify feasible properties, how

they participate in the development of the final space design and

construction, and how they plan for their future leased space needs.

To identify the steps GSA has taken to identify stakeholder concerns and

evaluate its simplified lease model, we reviewed pertinent GSA

documents and interviewed GSA officials on recent lease reform efforts,

including how GSA has defined them, what information GSA used to

develop them, how GSA has implemented them, and how GSA has

assessed their performance. In addition, we obtained information from our

interviews with lessors and real estate brokers about their impressions of

GSA’s lease reform efforts, including whether they were aware of the

efforts, and what effects they had observed. We compared GSA’s efforts

to identify and address stakeholder concerns to Federal Standards for

Internal Control related to external communication.

To identify how often GSA has used its simplified lease model and the

characteristics of the leases for which GSA used the model, we used the

GSA fiscal year 2016–2018 lease data described previously. We

analyzed the data to obtain information about the number of leases that

had used each of GSA’s lease models, and the average rent amounts,

size, and terms. Even though the facility security level is an additional

eligibility requirement for the model, we could not include it in this analysis

because GSA does not have security level information for many of the

leases in this dataset. However, we determined that omitting this data

We also eliminated the Transportation Security Administration because they entered into

leases primarily for airport properties, which are not representative of the broader real

estate market.

See GAO, Standards for Internal Control in the Federal Government, GAO-14-704G

(Washington, D.C.: Sep 10, 2014).

Appendix I: Objectives, Scope, and

Methodology

Page 34 GAO-20-181 GSA Leasing

field did not substantially change the results of this analysis because only

a small number of leases with costs below $150,000 also had a facility

security level of III or above. We were not able to assess the extent to

which the lower rental costs might be attributable to the use of the

simplified lease model because there are other factors that that contribute

to its use that are not included in GSA’s data. For example, in order for

GSA to use the simplified lease model, tenant agencies must provide fully

developments prior to GSA advertising the lease. The data do not include

the date GSA received these requirements. We compared GSA’s efforts

to evaluate its simplified lease model to criteria from our prior work on the

use of performance information for decision-making.

We conducted this performance audit from October 2018 to December

2019 in accordance with generally accepted government auditing

standards. Those standards require that we plan and perform the audit to

obtain sufficient, appropriate evidence to provide a reasonable basis for

our findings and conclusions based on our audit objectives. We believe

that the evidence obtained provides a reasonable basis for our findings

and conclusions based on our audit objectives.

See GAO, Managing for Results: Enhancing Agency Use of Performance Information for

Management Decision Making, GAO-05-927 (Washington, D.C.: Sep 9, 2005).

Appendix II: Comments from the General

Services Administration

Page 35 GAO-20-181 GSA Leasing

Appendix II: Comments from the General

Services Administration

Appendix II: Comments from the General

Services Administration

Page 36 GAO-20-181 GSA Leasing

Appendix III: GAO Contact and Staff

Acknowledgments

Page 37 GAO-20-181 GSA Leasing

Lori Rectanus at (202) 512-2834 or rectanusl@gao.gov

In addition to the contact named above, Amelia Bates Shachoy, Assistant

Director; Alex Fedell, Analyst-in-Charge; James Duke; Cynthia Grant;

Geoffrey Hamilton; Gina Hoover; Terence Lam; Malika Rice; Kelly Rubin;

Jim Russell; Patrick Tierney; and Amelia Michelle Weathers made key

contributions to this report.

Appendix III: GAO Contact and Staff

Acknowledgments

GAO Contact

Staff

Acknowledgments

(103060)

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