Episode 2 – State of GSA Leasing, Amortization Rates, Increase Operating Rent!

Live Q&A for all things GSA Leasing and GSA Occupancy

Short Summary of the Episode:

  1. An overview of the “current state” of GSA Leasing.
  2. What do you need to think about as you are establishing your interest rate at the point of Final Proposal Revisions (FPR)
  3. Ways you can (AND SHOULD) be increasing your operating rent throughout the design and construction process.

Highlights of the Topics Discussed:

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  3. General State of GSA Leasing Today
    • There recently has been a massive shift to either acquisitions through AAAP (https://lop.gsa.gov/AAAP/LoginPage ) or utilizing the broker contract. GSA has a bow wave of work they have to complete in the next few year and GSA unfortunately doesn’t have the capacity to take on all of this work. To work around that they are going to want to use the tools at their disposal that can save them time.
    • Movement towards longer lease terms which is great news for everyone. The Government gets reduced rates and owners will be able to obtain better financing. Learn more about this topic starting at 7:40-10:00
    • Delays have been increasing. Post-Award delays have always been common, but as of late Pre-Award delays have been increasing. What I have been hearing is that management reviews, waiting for occupancy agreements, and the Reimbursable Work Authorization (RWA). A RWA is a check that the agency cuts to GSA so that GSA can start the contract and for some reason these checks have been taking months and months to receive. I am thinking that these issues stem from the recent Government Shutdown, and I am hopeful that as we get back into the swing of things that these Pre-Award proceeding will speed back up.
  4. Establishing Interested Rates
    • The challenge of deciding what interest rates should be when submitting a final proposal revisions, is that it is not “What are interest rates today” it is “What will interest rates be at the point that you make the conversion to permanent financing”.
    • Basically, GSA is asking you to provide this interest rate now, when it can be months to years before the tenant actually moves into the building and interest rates can change drastically in that amount of time.
    • Making an exactly accurate amortization rates prediction that far in the future is impossible, but you can make an educated guess by discussing it with your bank and giving yourself a buffer to be safe.
  5. Increases in Operating Rent
    • Making sure you are thinking and accounting for all expenses during the GSA lease is extremely important. To help GSA provides the 1217 Form called the Lessor’s Annual Cost Statement (https://www.gsa.gov/reference/forms?search_keyword=1217) that steps through expenses line by line that play into your operating rent.
    • Any time you get a change order after the post order, make sure you are thinking about the hard costs and the ongoing maintenance cost that goes along with this item. For example, if the government comes back and needs a generator that wasn’t initially needed, people generally think about the expense of the generator but what they don’t consider is the cost of maintenance on that generator as that will also be their responsibility. The reason you should be thinking of both hard cost and maintenance is if you do your due diligence you can present both costs back to the Government and request a higher operating rent.
    • See another more in-depth real-world example starting at 22:40-27:05

HAVE GSA LEASING QUESTIONS? CONTACT ARCO!