What to Expect with GSA Leasing?
During times of economic uncertainty, my phone begins to ring a bit more often. Landlords / developers / brokers from around the country begin to call with one question, how can I help them identify opportunities to lease to the General Services Administration (GSA).
I will cover my process for identifying opportunities with GSA in another blog post, but for now I want to address something more important; What should you expect with GSA leasing and when pursuing a GSA lease opportunity. And while the following list is not inclusive of everything you need to know, it will certainly provide you with a solid foundation on which to begin understanding this new world you are entering.
Top 3 Things you Must Know Before Pursuing A GSA Lease Opportunity:
1) The GSA or other Federal Agency will NOT be signing your lease
If you are a new landlord / broker / developer considering this space, the very first thing you need to understand about GSA leases is the Government will NOT be signing your lease. In fact, the opposite is true. If you want the “privilege” of having a federal tenant in your space, you will be signing the Tenant’s lease.
The GSA base lease itself is only approximately 30 pages (size varies on “lease model” and number of clauses modified), but a full lease package can easily exceed 100+ pages. Your understanding of what’s contained in those 100+ pages will be the difference between a wonderful, stable, cash flowing lease, and a massive encumbrance on your property for the next 10+ years.
And this leads us to the next point…
2) GSA Leases ARE NOT Market Leases
This point cannot be stressed enough. Not only will you be signing the government’s lease, you will be signing a lease that bears little resemblance to the market leases you are familiar with. You will be faced with new rental components like “Shell Rent” (which doesn’t exist in the commercial market), “BSAC”, and other terms and requirements that will not immediately make sense.
You will need to understand how each section of that 100+ page lease effects the rent you ultimately offer. Some of the lease helps you construct your Shell Rent. Some of the lease explains that cost components that you would typically consider OPEX actually belong in other rent components. Some things that you would consider tenant improvements, you will later learn are actually the “cost of ownership” and the GSA nor the tenant they represent will be reimbursing you for those costs.
If you base your offer solely on the fact that the GSA is seeking a “Fully Serviced Lease”, and you consult with your local broker on what fully serviced leases are demanding in your market, then you are setting yourself up for a financially devastating road ahead. And that is what makes the next point so critical.
3) You Must Hire a GSA or Federal Leasing Expert
The value of a local broker cannot be underestimated. Their access to local information and knowledge of the local market is incredibly valuable. However, in the same way that the local broker should be an expert in their niche of the local market, the GSA leasing expert is an expert in knowing what to expect with GSA leasing because it is their niche as well.
As described above, the GSA lease (and other federal leases for that matter) can easily exceed over 100+ pages. That 100+ pages is filled with cost-drivers, future landlord investments, instructions on how the space is to be built out and which party is responsible for which costs associated with the build-out, and the list goes on and on. You must have a GSA leasing expert on your team who knows what to expect from GSA leasing and can guide you through this opus to help ensure you are covered when the time comes to submit your final offer.
While a qualified GSA leasing broker in this space can certainly help you understand the nuance of a GSA lease, it will be your responsibility to essentially forget everything you know about commercial real estate and listen to the GSA leasing expert because making decisions on what you think you know can cause you a great deal of heartache down the road.
And on the topic of hiring a qualified GSA leasing expert, VA leasing expert, or general Federal and State Government leasing expert, I cannot stress enough how critical this is. This is a niche market and the leases are complex, so having a qualified GSA leasing expert in your corner will help a great deal.
To conclude, GSA leasing can be complex and there is much more to cover. I will attempt to address many of these additional topics in future blog posts. However, if you are considering entering this space sooner, do not hesitate to reach out and contact me directly.
I founded Arco Real Estate Solutions as a way of sharing my expertise, and the expertise of others in this space that I know and respect, with those of you out there seeking answers on this desirable product type with steep informational barriers to entry. I’m here to help, even if that means referring you to another firm that would be a better fit.
You can reach me at:
Contact Form: https://arcoresolutions.com/contact-us/