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United States Government Accountability Office: 
GAO: 

Report to the Committee on Homeland Security and Governmental Affairs, 
U.S. Senate: 

September 2013: 

Federal Real Property: 

Greater Transparency and Strategic Focus Needed for High-Value GSA 
Leases: 

GAO-13-744: 

GAO Highlights: 

Highlights of GAO-13-744, a report to the Committee on Homeland 
Security and Governmental Affairs, U.S. Senate. 

Why GAO Did This Study: 

Overreliance on costly leasing is one reason that federal real 
property has remained on GAO’s high-risk list. GAO’s work has shown 
that building ownership often costs less than leasing, especially for 
long-term space needs. For leases with a net annual rent above a 
threshold—-$2.79 million in fiscal year 2012—-GSA is required to 
submit a prospectus, or proposal, to Congress. GAO was asked to review 
these high-value leases. This report (1) identifies their 
characteristics and what GSA has done to reduce their cost and (2) 
assesses the extent to which GSA’s capital-planning approach supports 
informed leasing decisions. GAO reviewed GSA data for all 218 active 
high-value leases as of November 2012 and selected 12 leases for case 
studies based on expiration dates, locations, and tenant agencies. GAO 
reviewed relevant legislation and guidance, interviewed agency 
officials, and compared GSA actions to leading practices. 

What GAO Found: 

The General Services Administration’s (GSA) 218 high-value leases GAO 
reviewed represented only about 3 percent of the total number of GSA 
leases, yet made up about one-third of its leased portfolio in terms 
of cost and size. GSA has reduced the costs of its high-value leases 
in line with the administration’s goal to reduce real property costs. 
GSA’s efforts include helping agencies improve space utilization. 
However, for leases nearing expiration, GSA and tenant agencies have 
faced challenges in funding space renovations and moving costs. This 
lack of funds has contributed to delays and some cases in which GSA 
continues to occupy space after the lease expires. 

GSA officials stated that for most high-value leases, federal 
ownership would be more cost effective over the long term, but GSA did 
not have the funding available to purchase, renovate, or construct a 
building. GAO found that GSA’s capital-planning approach lacks 
transparency and a strategic focus that could support more informed 
decision making in this area. Specifically, GSA does not follow 
capital-planning practices involving alternatives evaluation, project 
prioritization, and long-term capital planning: 

* GSA’s lease prospectuses do not discuss the length of time of the 
space need or alternative approaches to meeting it—which are key to 
understanding whether leasing or owning would be more cost-effective. 
Twenty-seven of the prospectuses (for leases expiring from 2012 
through 2027) contained an analysis that showed potential savings of 
over $866 million if the spaces were owned rather than leased. GSA and 
OMB have decided the analysis is no longer necessary in light of the 
lack of capital funding for acquisitions and construction. GAO’s case 
studies highlighted long-term, mission critical space needs, such as a 
lease for the Environmental Protection Agency in Seattle for space it 
has occupied for over 40 years. Another high-value lease is for the 
State Department’s diplomatic security bureau in Virginia. State 
invested at least $80 million in security upgrades into a facility 
that GSA leased for 10 years. 

* Further, GAO found that nine ongoing high-value leases did not go 
through the prospectus process. For example, GSA mistakenly did not 
prepare a prospectus for a 10-year Los Angeles lease for the U.S. Army 
Corps of Engineers. GSA did not notify Congress of these leases, 
further limiting transparency. 

* GSA has not systematically prioritized which space needs currently 
in high-value leases it would be most beneficial to move to federally-
owned solutions. GSA has not incorporated space needs that are the 
highest priority for ownership investment into a long-term capital 
plan. 

This lack of information on the long-term consequences, including 
costs and risks, of high-value leases could inadvertently contribute 
to the federal government’s overspending on long-term space needs. In 
contrast, a strategic vision incorporating leading practices for 
capital decision making could better position the government to save 
money over time. Increased transparency could promote collaboration 
with decision makers, which could help GSA address challenges and 
identify cost savings opportunities as leases expire. 

What GAO Recommends: 

GSA should enhance the transparency of decision making for high-value 
leases by (1) including more information in the prospectus to 
Congress, such as the agency’s prior and future need for the space, 
major investments needed, and an appropriate analysis of the cost of 
leasing versus the cost of ownership; (2) reporting to congressional 
committees about certain leases without a prospectus; and (3) 
prioritizing potential ownership solutions for current high-value 
leases to help create a long-term strategy for targeted ownership 
investments. GSA concurred with the recommendations. 

View [hyperlink, http://www.gao.gov/products/GAO-13-744]. For more 
information, contact David Wise at (202) 512-2834 or wised@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

High-Value Leases Are about One Third of GSA's Net Annual Rent Costs, 
and GSA Has Worked with Agencies to Reduce Their Costs: 

GSA's Capital-Planning Approach Does Not Promote Informed Decision 
Making about Leasing versus Ownership: 

Conclusions: 

Recommendations: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Comments from the General Services Administration: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Related GAO Products: 

Table: 

Table 1: GSA High-Value Leases without a Prospectus, as of November 
2012: 

Figures: 

Figure 1: Percentage of High-Value Leases in GSA's Leased Real 
Property Portfolio, by Number, Size, and Cost, as of November 2012: 

Figure 2: Location and Rentable Square Feet of the 218 High-Value 
Leases by State, as of November 2012: 

Figure 3: GSA's Top 5 High-Value Lease Tenants by Total Rentable 
Square Feet, as of November 2012: 

Figure 4: GSA and FAA Are Working to Reduce Leased Space Needs for FAA 
in Renton, Washington: 

Abbreviations: 

CILP: Capital Investment and Leasing Program: 

EPA: Environmental Protection Agency: 

FAA: Federal Aviation Administration: 

GSA: General Services Administration: 

HHS: Department of Health and Human Services: 

OMB: Office of Management and Budget: 

REXUS: Real Estate Across the United States database: 

[End of section] 

GAO:
United States Government Accountability Office: 
441 G St. N.W. 
Washington, DC 20548: 

September 19, 2013: 

The Honorable Thomas R. Carper: 
Chairman: 
The Honorable Tom Coburn: 
Ranking Member: 
Committee on Homeland Security and Governmental Affairs: 
United States Senate: 

Overreliance on costly leasing is one of the major reasons that 
federal real property management remains on GAO's high-risk list. 
[Footnote 1] Under certain conditions, such as fulfilling short-term 
needs for office space, leasing may be a lower-cost option than 
ownership. However, our work over the years has shown that building 
ownership often costs less than operating leases, especially for long-
term needs for space. In a series of reports since 1995, we found that 
for 67 of 89 General Services Administration (GSA) leases we examined, 
the government could have saved almost $1 billion if it had 
constructed rather than leased space for federal agencies.[Footnote 2] 
As we have examined only a small number of GSA's total leasing actions 
since 1995, the potential savings from construction rather than 
leasing is likely to have been even higher. Recently, we found that 
the federal government owns facilities that are underutilized in 
locations where it also leases space. In some cases, space within 
these government-owned properties could be occupied by other 
government agencies.[Footnote 3] 

GSA manages real property for many civilian federal agencies, and has 
a large portfolio of owned and leased properties that it rents to its 
federal agency customers.[Footnote 4] As of fiscal year 2011, the most 
recent year for which GSA published portfolio information, GSA had a 
total of 374.6 million rentable square feet in its inventory, of which 
192.7 million--slightly more than half--were leased. (GSA typically 
reports square feet in terms of rentable square feet, which includes 
the square footage of areas occupied by customers plus a prorated 
share of common areas such as elevator lobbies, building corridors, 
and the ground floor entrance lobby.)[Footnote 5] GSA is authorized to 
enter into lease agreements for real property for a term not to exceed 
20 years to accommodate federal agencies' needs for space.[Footnote 6] 
For leases with a net annual rent[Footnote 7] above a threshold--$2.79 
million in fiscal year 2012--GSA is required to submit a prospectus, 
or proposal, to the House and Senate authorizing committees for their 
review and approval.[Footnote 8] The prospectus is to provide basic 
information on the proposed lease--including the purpose, location, 
and cost--to assist Congress in overseeing GSA's management of its 
real property portfolio. You asked us to review GSA's management of 
its prospectus-level leases, which we have termed "high-value" leases. 
This report (1) identifies the characteristics of GSA's high-value 
leases and what actions, if any, GSA has taken to reduce their cost; 
and (2) assesses the extent to which GSA's capital planning approach 
promotes informed decision making about leasing versus ownership. 

To address these objectives, we analyzed data provided by GSA from its 
Real Estate Across the United States (REXUS) database to determine the 
number of active leases as of November 30, 2012, including those with 
a net annual rent at or above the fiscal year 2012 prospectus 
threshold of $2.79 million. We determined that 218 of GSA's leases met 
these criteria. We defined these 218 leases as our universe of high-
value leases. We reviewed the prospectuses of these leases and 
selected a non-generalizable sample of 12 to examine more closely. For 
these 12 high-value lease case studies, we also reviewed analyses that 
accompanied the prospectuses, the lease contracts, and other 
documentation; conducted site visits; and interviewed local GSA 
officials, tenant agencies, and lessors. For the 12 case studies, we 
selected leases that were nearing expiration or had recently been 
entered into[Footnote 9] and provided space for 14 different federal 
tenants. Because about 60 percent of high-value leases are located in 
GSA's National Capital Region, we selected six of the leases from that 
region. We selected the other six from the Northwest/Arctic, Pacific 
Rim, and Greater Southwest Regions for geographical diversity. While 
not generalizable to the universe of high-value leases, the 
information obtained from our case studies provides examples of 
broader issues faced by GSA in managing its high-value lease 
portfolio. In addition to our case study work, we reviewed relevant 
legislation, regulations, Office of Management and Budget (OMB) 
guidance, our prior work, GSA guidance, and industry reports and 
studies and interviewed GSA headquarters officials and private sector 
officials with experience leasing to GSA. We identified leading 
practices for making capital investment decisions from GAO's Executive 
Guide[Footnote 10] and OMB's Capital Programming Guide,[Footnote 11] 
and assessed GSA's efforts to incorporate such leading practices into 
its decision making on leasing versus ownership. We conducted this 
performance audit from September 2012 to September 2013 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. For more information on our 
scope and methodology, see appendix I. 

Background: 

Within the vast portfolio of government owned and leased assets, GSA 
plays the role of broker and property manager to many civilian 
agencies of the U.S. government. Although some agencies have 
independent authority related to real property, many rely on GSA for 
much of their real property needs. GSA's federally-owned and leased 
assets include office and warehouse space and courthouses. GSA charges 
rent to federal tenant agencies occupying federally-owned and -leased 
space at rates that are approximately the same as commercial rates for 
comparable space and services. According to GSA's most recent State of 
the Portfolio publication, as of fiscal year 2011, GSA had a total of 
374.6 million rentable square feet in its inventory, of which 192.7 
million--slightly more half--were leased.[Footnote 12] In this State 
of the Portfolio, GSA states that its overarching goal for its 
portfolio is to maximize the use of its government-owned inventory 
while reducing the GSA-managed real estate footprint overall. GSA must 
also follow federal requirements in implementing its leasing program. 
Federal management regulations specify that when seeking to acquire 
space for an agency, GSA is to first seek space in government-owned 
and government-leased buildings. If suitable government-controlled 
space is unavailable, GSA is to acquire space in an efficient and cost 
effective manner.[Footnote 13] GSA's Office of Portfolio Management is 
responsible for establishing the strategies and policies for GSA's 
real property portfolio, while GSA's 11 regional offices are generally 
responsible for conducting day-to-day real property management 
activities, including leasing, in each of its regions. 

GSA is required by statute to provide a prospectus, or proposal, for 
real property leases above the prospectus threshold to House and 
Senate authorizing committees for their review and approval.[Footnote 
14] The prospectus should include basic information about the space to 
be leased, including the location, an estimate of the maximum cost to 
the government of the space, and a statement of rent currently being 
paid by the government for federal agencies to be housed in the space. 
While these items are required by law to be in the prospectus, GSA is 
not prohibited from including other information in the lease 
prospectuses, and at various times has incorporated additional 
information. For example, prior to the mid 1990s, GSA routinely 
included an analysis that compared the long-term costs of leasing 
versus ownership. At times, GSA includes information on space 
utilization rates (i.e., the number of usable square feet per person). 
By statute, GSA is also required to provide authorizing committees a 
prospectus for each proposed capital project over the prospectus 
threshold, including both new construction and repair and alteration 
projects. Typically, prospectuses are drafted in the GSA regional 
offices and reviewed and approved by GSA's Office of Portfolio 
Management. The prospectuses are then reviewed and approved by OMB 
prior to being provided to congressional authorizing committees--the 
Senate Committee on Environment and Public Works and the House 
Committee on Transportation and Infrastructure. 

Federal real property management has been on GAO's high-risk list due 
to many complex and long-standing problems, including excess and 
underutilized property, challenges related to protecting federal 
facilities, and an overreliance on costly leasing.[Footnote 15] In 
past work, we have found that GSA relies heavily on costly operating 
leases to meet new long-term needs because it typically lacks the 
upfront funding needed to purchase buildings or space. For example, in 
2007,[Footnote 16] we reported that although building ownership 
options through construction or purchase are generally the least 
expensive ways to meet agencies' long-term space needs, GSA relied 
heavily on operating leases to meet new long-term needs because it 
lacked funds to pursue ownership. Budget scorekeeping rules were 
established based on the Budget Enforcement Act of 1990. The purpose 
of these rules is to ensure that the House and Senate Budget 
Committees, the Congressional Budget Office, and OMB measure the 
effects of legislation consistently and meet specific legal 
requirements. They are also used by OMB for determining amounts to be 
recognized in the budget when an agency signs a contract or enters 
into a lease. Upfront funding is the best way to ensure recognition of 
commitments embodied in budgeting decisions and maintain government-
wide fiscal control. Under these rules, for a construction or purchase 
project or a capital lease, the full cost of the project must be 
recorded in the budget in the year in which the budget authority is to 
be made available. Operating leases were intended for short-term 
needs, and thus, under the scorekeeping rules, only the amount needed 
to cover the first year's lease payments plus cancellation costs needs 
to be recorded in the budget. For operating leases funded by GSA's 
Federal Buildings Fund (which is self-insuring), only the budget 
authority needed to cover the annual payments is required to be 
scored. GSA does not have to include cancellation costs.[Footnote 17] 
Thus, an operating lease may potentially appear "cheaper" in the 
budget than a construction or purchase project, or a capital lease, 
even though it may cost more over time. Using an operating lease--or 
successive operating leases--for a long-term space need may result in 
resource allocation decisions for which the budgeting process may not 
have considered the full financial commitment over the full length of 
time the space need exists. Consequently, costly operating leases may 
be preferred over less-costly alternatives such as major construction 
or renovation projects that must compete for full funding. 

A number of OMB-defined criteria must be met for a lease to be 
considered an operating lease.[Footnote 18] Among other things, the 
lease must "score" as an operating lease rather than a capital lease, 
meaning that the present value of the minimum lease payments over the 
life of the lease does not exceed 90 percent of the fair market value 
of the asset at the inception of the lease. Because the scoring seeks 
to compare a present day fair market value to the value of minimum 
lease payments made over time, a discount rate must be used in 
calculating the total cost of the minimum lease payments over the 
lease term. GSA uses the discount rates determined annually by OMB, 
rates that vary depending on the length of time being considered in 
the calculation. For example, if the fair market value of an asset is 
$1 million, and the lease has a minimum annual lease payment of 
$100,000 with a term of 7 years, then the calculation of the total 
value of the minimum lease payments over the 7 years (applying OMB's 
2012 7-year discount rate of 0.7 percent) would be about $680,000. 
This total value of $680,000 is 68 percent of the fair market value of 
$1 million--which, at less than 90 percent, would result in the lease 
being scored as an operating lease. However, if the lease term was 20 
years, the calculation of the total value of the minimum lease 
payments of $100,000 over the 20 years (applying OMB's 2012 20-year 
discount rate of 1.7 percent) would be about $1.7 million. Since $1.7 
million is more than 90 percent of $1 million, the score would exceed 
the 90 percent threshold and result in the lease being scored as a 
capital lease. 

If the project scores as a capital lease, the net present value of the 
total cost of the lease is recorded in the budget in the year the 
lease is entered into by the federal government. In the above 
examples, the 7-year operating lease with a minimum annual rent of 
$100,000 would result in $100,000 being scored against GSA's budget 
authority for each of the next 7 years. For the capital lease, the net 
present value of the total lease costs (about $1.7 million) would be 
scored against GSA's fiscal year budget authority in the year lease 
payments began. 

Over the years, we have reported on numerous examples of operating 
leases that GSA and the U.S. Postal Service entered into even though 
they were more costly over time than ownership. For example, in 2008, 
we found that in 10 GSA and U.S. Postal Service leases, decisions to 
lease space that would be more cost-effective to own were driven by 
the limited availability of capital for building ownership and other 
considerations, such as operational efficiency and security.[Footnote 
19] We found that for four of the seven GSA leases GAO analyzed, 
leasing was more costly over time than construction--by an estimated 
$83.3 million over 30 years. At that time, we stated that while the 
administration had made progress in addressing long-standing real 
property problems, efforts to address the leasing challenge had been 
limited. Some alternative approaches had been discussed by various 
stakeholders, such as the President's Commission to Study Capital 
Budgeting and us, including the approach of scoring operating leases 
the same as capital leases, which would make them comparable in the 
budget to direct federal ownership, but none had been implemented. In 
2008, we recommended that OMB, in conjunction with other stakeholders, 
develop a strategy to reduce agencies' reliance on leased space for 
long-term needs when ownership would be less costly. OMB generally 
agreed with our report and recommendation and stated that it would be 
useful to consider how to identify instances where operating leases 
are most likely to be to the government's long-term financial 
detriment. While OMB did not develop the strategy we described, OMB 
staff said that they have emphasized in guidance issued over the past 
several years that agencies should reduce space needs, including for 
leased space, through increases in space efficiency. 

Specifically, in June 2010, the President directed agencies to achieve 
$3 billion in real property cost savings by the end of fiscal year 
2012 through a number of measures, including disposing of excess real 
property and reducing leasing through consolidations and increased 
space utilization.[Footnote 20] In May 2012, OMB issued a memorandum 
directing agencies to not increase the size of their civilian real 
estate inventory, stating that increases in an agency's total square 
footage of civilian property must be offset through consolidation, co-
location, or disposal of space from the inventory of that agency. 
[Footnote 21] This policy became known as "freeze the footprint." In 
March 2013, OMB issued a memorandum establishing implementation 
procedures for its "freeze the footprint" policy. This memorandum 
clarified that agencies were not to increase the total square footage 
of their domestic office and warehouse inventory compared to a fiscal 
year 2012 baseline. It also directed agencies to use various 
strategies to accomplish this goal, including consulting with GSA 
about how to use technology and space management to consolidate, 
increase occupancy rates in facilities, and eliminate lease 
arrangements that are not cost or space effective.[Footnote 22] 

High-Value Leases Are about One Third of GSA's Net Annual Rent Costs, 
and GSA Has Worked with Agencies to Reduce Their Costs: 

As of November 2012, GSA's 218 high-value leases had a total net 
annual rent of over $1.5 billion--36 percent of the approximately $4.2 
billion net annual rent of GSA's leased portfolio. In recent years, 
GSA has taken steps to reduce the costs of its high-value leased 
portfolio. For example, GSA has helped agencies reduce their space 
needs and consolidate space as high-value leases expire. Challenges 
related to reducing lease costs include a lack of funding to renovate 
space and delays that can result in costly short-term extensions or 
"holdover" situations, in which the agency remains in the space past 
the lease's expiration date without a new lease agreement. 

Characteristics of High-Value Leases: 

As of November 2012, GSA's 218 high-value leases represented only 
about 3 percent of the total number of GSA leases, yet made up about 
one-third of GSA's leased portfolio in terms of cost and size. 
Together, these 218 leases have a net annual rent of over $1.5 
billion, or 36 percent of the roughly $4.2 billion total net annual 
rent of GSA's leased portfolio. Similarly, the 218 leases include over 
54 million rentable square feet, or almost 30 percent of the roughly 
188 million rentable square feet in GSA's leased portfolio. (See 
figure 1.) 

Figure 1: Percentage of High-Value Leases in GSA's Leased Real 
Property Portfolio, by Number, Size, and Cost, as of November 2012: 

[Refer to PDF for image: 3 pie-charts] 

Total GSA leases (8,342): 
High-value leases: 3%. 

Total GSA-leased square footage (54 million rentable square feet): 
High-value leases: 29%. 

Total GSA net annual rent ($4.2 billion): 
High-value leases: 36%. 

Source: GAO analysis of GSA data. 

[End of figure] 

The average size of the 218 leases is 249,000 rentable square feet, 
ranging from about 57,000 rentable square feet for a lease for the 
Department of Justice in Miami, Florida, to the largest and most 
expensive of the high-value leases--a Department of Commerce lease in 
Alexandria, Virginia, that is about 2.4 million rentable square feet 
and has a net annual rent of $60 million. The average net annual rent 
for the high-value leases is about $7 million. About 60 percent of the 
high-value leases are located in GSA's National Capital Region--which 
includes Washington, D.C., and portions of Northern Virginia and 
suburban Maryland. The rest are spread throughout the United States, 
with concentrations in other major urban areas such as New York, 
Seattle, and Dallas. (See figure2.) 

Figure 2: Location and Rentable Square Feet of the 218 High-Value 
Leases by State, as of November 2012: 

[Refer to PDF for image: illustrated U.S. map] 

Number of lease locations per state: 0: 
Alaska: 
Arkansas: 
Connecticut: 
Delaware: 
Hawaii: 
Idaho: 
Iowa: 
Kansas: 
Maine: 
Massachusetts: 
Mississippi: 
Montana: 
Nevada: 
New Hampshire: 
New Mexico: 
North Dakota: 
Oklahoma: 
Rhode Island: 
South Carolina: 
South Dakota: 
Vermont: 
Wisconsin: 
Wyoming: 

Number of lease locations per state: 1-4: 
Net annual rent per state: 
Alabama: 2; $18.3 million); 
Arizona: 2; $9.1 million); 
Colorado: 4; $18.9 million; 
Georgia: 3; $40.4 million); 
Illinois: 3; $23.6 million); 
Indiana: 1; $3.8 million); 
Kentucky: 2; $7.0 million); 
Louisiana: 1; $4.2 million); 
Michigan: 1; $12.3 million); 
Minnesota: 2; $8.9 million); 
Nebraska: 1; $3.6 million); 
New Jersey: 3; $27.6 million; 
North Carolina: 1; $5.5 million); 
Ohio: 2; $7.7 million; 
Oregon: 2; $13.1 million); 
Pennsylvania: 3; $32.6 million); 
Puerto Rico: 1; $3.5 million); 
Tennessee: 1; $2.9 million); 
Utah: 1; $5.3 million); 
West Virginia: 2; $7.4 million). 

Number of lease locations per state: 5-8: 
Net annual rent per state: 
California: 8; $39.4 million; 
Florida: 5; $18.6 million; 
Missouri: 5; $44.8 million; 
Texas: 7; $25.7 million; 
Washington: 6; $25.5 million; 

Number of lease locations per state: 11 or more: 
Net annual rent per state: 
District of Columbia: 70; $546.9
Maryland: 23; $142.0 million; 
New York: 11; $84.6 million; 
Virginia: 42; $323.3 million. 

Sources: GAO analysis of GSA data and Map Resources. 

[End of figure] 

High-value leases house a microcosm of the federal tenants for whom 
GSA provides leased space. The tenants of these leases include 41 
federal agencies and departments. The Departments of Justice, 
Treasury, and Commerce have the largest amount of space among the 218 
high-value-leases. For example, the high-value leases include 9.4 
million rentable square feet for the Department of Justice, 
representing 17 percent of the over 54 million rentable square feet in 
the 218 leases. (See figure 3). 

Figure 3: GSA's Top 5 High-Value Lease Tenants by Total Rentable 
Square Feet, as of November 2012: 

[Refer to PDF for image: vertical bar graph] 

Agency Name: 

Agency Name: Department of Justice; 
Rentable Square Feet: 9.4 million. 

Agency Name: Department of Treasury; 
Rentable Square Feet: 5.9 million. 

Agency Name: Department of Commerce; 
Rentable Square Feet: 3.9 million. 

Agency Name: Department of Homeland Security; 
Rentable Square Feet: 3.9 million. 

Agency Name: Office of the Secretary of Defense; 
Rentable Square Feet: 3.7 million. 

Source: GAO analysis of GSA data. 

[End of figure] 

Most of the high-value leases have lease terms of at least 10 years. 
The majority--55 percent--have lease terms of more than 10 years, and 
31 percent, or 68 leases, have lease terms of 20 years.[Footnote 23] 
While lease expiration dates ranged from 2012 through 2032, over 60 
percent of the leases will expire by 2018. For instance, FAA officials 
told us that they have several high-value leases in their Southwest, 
Northwest Mountain, and Southern regions--providing space for about 
1,500 employees at each location--that expire from 2013 through 2017. 
Employees at these regional headquarters work for various FAA lines of 
business, such as Aircraft Certification, Flight Standards, and Air 
Traffic Organization. According to GSA's leasing program officials, 
these upcoming lease expirations provide opportunities to help meet 
administration goals for cost savings through reducing costly leases--
via space consolidations or moving from leased to owned space--
although as discussed later in this report, GSA and tenant agencies 
may face funding and other challenges in doing so. 

GSA's Efforts to Reduce Costs of High-Value Leases: 

GSA has taken steps to reduce the costs of its high-value leased 
portfolio in recent years in line with administration goals to reduce 
real property holdings. First, GSA officials stated that, as required 
by regulation, GSA always looks first to federally owned or existing 
leased space to fill space needs. GSA officials stated that all of 
GSA's high-value leases represent space needs that could not be 
accommodated in existing federally owned space and that they review 
the federally owned inventory as high-value leases expire to see if 
there is any new potential to move the federal tenant into an owned 
situation. For example, a regional GSA official stated that GSA 
currently has 127,000 rentable square feet of vacant space in a Los 
Angeles federal building. Among other options, GSA is considering the 
potential to move the Army Corps of Engineers in Los Angeles from a 
high-value lease with a net annual rent of $3.2 million in which the 
Army Corps is occupying about 118,000 rentable square feet into this 
federal space when the lease expires in 2016.[Footnote 24] However, 
according to GSA officials, GSA often does not have large enough 
vacant spaces in federally owned buildings to meet agencies' high-
value space needs--particularly without major, costly renovations. 

Another way in which GSA has worked in recent years to reduce costs of 
high-value leases is through efforts to help agencies reduce the 
amount of space they occupy. Among other things, GSA has worked with 
OMB and agencies to reduce the amount of space per employee (the space 
utilization rate) in recently submitted lease prospectuses--including 
at times, revising draft prospectuses to decrease the space 
utilization rate and thereby the overall amount of space requested. 
For example, OMB officials stated that they noticed that a recent 
draft prospectus for a law enforcement agency's field office--an 
environment in which many staff are away from their desks much of the 
time--had the same proposed utilization rate as a space request from 
an administrative agency in Washington, D.C., where most employees 
work at their desks. OMB and GSA worked with the law enforcement 
agency to come to an agreement on a reduced utilization rate before 
submitting the prospectus to the congressional authorizing committees. 

Furthermore, GSA officials stated that GSA and tenant agencies have 
worked in recent years to reduce the square footage of new leases even 
when a larger amount of space had already been approved through the 
prospectus process. For example, in 2008, GSA submitted a prospectus 
for a new FAA lease to consolidate FAA's Northwest Mountain Region 
headquarters in the Seattle suburb of Renton, Washington, from 
multiple leases into one lease of up to 519,000 rentable square feet. 
The prospectus was approved by Senate and House authorizing committees 
in 2008 and 2009, respectively, prior to the 2010 presidential 
memorandum and 2013 OMB memorandum focusing on reducing space needs. 
According to GSA and FAA officials, the subsequent push to reduce 
space needs led GSA and FAA to reduce the lease proposal by about 40 
percent. According to agency officials, for the most part, FAA plans 
to adapt its needs to this smaller space by improving space 
utilization through greater use of open office space and increased 
teleworking, although it will also maintain some additional small 
warehouse leases it had initially hoped to consolidate. GSA worked 
closely with FAA to help FAA plan for improved space utilization--
including having FAA staff tour GSA's regional and local offices in 
the area, both of which have been redesigned with open floor plans 
that can accommodate more staff per square foot. (See figure 4.) 

Figure 4: GSA and FAA Are Working to Reduce Leased Space Needs for FAA 
in Renton, Washington: 

[Refer to PDF for image: 4 photographs] 

GSA’s current high-value lease for FAA in Renton, WA; 

A building next door that GSA rents for FAA space needs that it hopes
to consolidate in the next lease; 

FAA’s current office configuration in the Renton building, with high 
cubicle walls and private offices along the windows; 

GSA’s redesigned regional office in Auburn, WA, with an open floor
plan that reduces private office space and improves space utilization,
which GSA uses as a model for agencies such as FAA that are trying
to reduce space needs. 

Source: GAO. 

[End of figure] 

According to GSA officials, another way that GSA has worked to reduce 
lease costs is through improved customer real-property portfolio 
planning. According to GSA's fiscal year 2011 annual performance 
report, customer portfolio plans have been completed for three of 
GSA's top 20 customers, including the Department of Health and Human 
Services (HHS), and GSA expects to have an additional 9 completed by 
the end of fiscal year 2014. The customer portfolio plans attempt to 
optimize real property portfolios by agency, including cost savings 
and space reductions. For example, the September 2012 HHS customer 
portfolio plan describes GSA's efforts to optimize its suburban 
Maryland portfolio for HHS, which includes a combination of high-value 
and smaller leases. According to the plan, GSA negotiated for more 
than 1.2 million rentable square feet in suburban Maryland with an 
estimated annual lease cost reduction for National Institutes of 
Health (an Operating Division within HHS) of $4.4 million. The plan 
also describes planned consolidations into, and improvements to, a 
high-value suburban Maryland lease that would improve HHS's 
utilization rate and increase the number of staff in the space by 
about 50 percent--and that has estimated savings of over $10 million 
in annual rent through lease terminations. Future opportunities 
described in the customer portfolio plan include efforts to implement 
these types of consolidations and cost savings in other properties in 
HHS's portfolio. 

Challenges Related to Reducing Lease Costs: 

GSA also faces challenges related to reducing lease costs by shrinking 
the leased footprint through changes in space allocated to 
individuals--i.e., through reducing the number of square feet per 
person. Most of these challenges stem from broad funding issues faced 
by agencies government-wide, as agencies with shrinking budgets 
struggle to determine how to fund costs associated with moving or 
retrofitting space in order to improve space efficiency. In most 
cases, as the expiration date for an existing lease approaches, GSA 
issues a call for competitive bids for a new lease, for which the 
existing lessor can compete along with other lessors. Because a goal 
of the competitive process is for GSA to get the best deal for the new 
lease, agencies must commit to moving after their current lease 
expires if GSA determines that a different location will be less 
expensive over the term of the new lease. Agencies therefore must 
budget for potential moving costs in their annual budgets. Moving 
costs may include funds for the physical move, telecommunication 
network services and other technology needs, security features, new 
furniture and cubicle divisions, relocation management, and special 
consulting services.[Footnote 25] 

Even if an agency remains in the same location, reducing space by 
increasing space efficiency is likely to incur costs from 
technological and material build outs, such as new technology, 
furniture and cubicle walls. These costs must be paid up front from 
the agency's annual budget rather than being rolled into the monthly 
lease costs. According to GSA officials, in the past few years, agency 
uncertainty about future needs and a lack of funding to pay for moving 
costs or costs associated with reducing the square feet per person in 
the same location have at times made it difficult for GSA to get a 
commitment from an agency for a future space requirement. According to 
GSA officials, GSA typically begins planning for the next space need 
for a high-value lease 3 to 5 years ahead of the expiration date. They 
noted that this should provide GSA sufficient time in which to work 
with the tenant agency to understand its future space needs, draft the 
prospectus, have the prospectus reviewed and approved by OMB and 
congressional authorizing committees, and enter into a new lease. 
However, in recent years, agencies' delays due to a lack of funding to 
commit to a new space requirement sometimes led to the need for short-
term extensions or--if the landlord is unwilling to meet GSA's 
negotiations--"holdovers." 

According to GSA, holdovers are risky for the government because the 
government continues to occupy space to which it has no contractual 
rights. According to several private sector officials we spoke to, 
holdovers are problematic for the lessor because often a lessor's 
financing agreement for the building's mortgage depends upon having a 
signed lease, and the uncertainty of having a lease in holdover status 
can make it difficult or impossible to secure needed financing for the 
building. Several real estate experts we spoke with stated that if a 
private tenant goes into holdover status, the tenant must pay a 
substantial rent increase--such as a 200 percent increase in the 
rental rate during the period of time the lease is in holdover status--
as a penalty. Typically, the federal government does not pay such a 
penalty. In several specific cases we inquired about, GSA was 
continuing to pay the rent as stated in the expired lease without 
penalties. We found that 14, or 6 percent, of the 218 high-value 
leases were in holdover status as of November 2012.[Footnote 26] 

GSA attempts to avoid holdovers by getting short-term extensions in 
place when it cannot move forward with a new long-term lease. However, 
at times, GSA and the lessor cannot reach agreement on a short-term 
extension, and the lease enters into holdover status. The three leases 
among our 12 case studies that were in holdover status illustrate some 
of the interrelated challenges that can lead to holdovers. While all 
of the tenant agencies in these three cases plan to remain in the same 
location and GSA is paying the same rental rate as it did during the 
lease term, various combinations of factors--many of them external to 
GSA--precipitated and exacerbate the holdovers. For example, in one 
case, the lease initially entered holdover because GSA was awaiting 
congressional approval of a prospectus, but remained in holdover 
because of protracted negotiations with the landlord over lease term 
and price. In another case, it appears that GSA's attempt to execute 
separate leases for agencies that had once been in a combined lease 
was a factor in the holdover, while difficult negotiations with the 
lessor over the terms of the new lease lengthened the period of time 
the lease remained in holdover status. GSA officials stated that the 
current environment of reduced funding government-wide, and 
expectations that agencies will work to reduce space needs without 
necessarily having the funding to reconfigure their space, has 
resulted in a situation with no easy solutions. In this challenging 
environment, GSA, in its role as the manager of real property for many 
civilian agencies, has the opportunity to set forth a vision and 
strategy for federal real property that encompasses the needs of 
multiple federal agencies and balances real property priorities across 
the civilian federal government--a vision that could help mitigate 
these complex challenges over the long-term. The next section of this 
report explores GSA's long-term capital planning approach for its high-
value leased portfolio, which could be used to communicate such a 
vision to federal decision makers. 

GSA's Capital-Planning Approach Does Not Promote Informed Decision 
Making about Leasing versus Ownership: 

Although GSA officials stated that for most high-value leases, 
constructing federally-owned space would be more cost effective over 
time than continuing to lease, GSA's capital planning approach lacks a 
strategic focus that addresses its reliance on high-value leases. We 
identified three leading practices that characterize sound capital 
investment decision making and pertain to GSA's high-value leased 
portfolio: [Footnote 27] (1) alternatives evaluation, (2) project 
prioritization, and (3) creating a long-term capital plan. We found 
that GSA's lease prospectuses lack transparency on key information 
that would help decision makers understand the extent to which these 
high-value leases are the best alternatives to meet agencies' long-
term space needs. GSA also has not systematically prioritized which 
high-value leases have the most cost-saving potential if they were 
instead pursued as capital projects. Furthermore, GSA has not 
incorporated those high-value leases that should be the highest 
priority for ownership into a long-term capital plan. 

According to GSA Officials, Most High-Value Leases Are for Space Needs 
that Should Be In Federally-Owned Property: 

According to our work on leading practices in capital decision making, 
vision and leadership are crucial to the success of leading 
organizations' capital-planning efforts.[Footnote 28] Many 
headquarters and regional GSA officials, including assistant 
commissioners in GSA's leasing program, stated that the optimal way to 
manage GSA's high-value lease portfolio in line with its long-term 
portfolio goals would be to transfer many of the housing needs that 
are currently in high-value leases into federally owned property. This 
transfer could be accomplished either by shifting personnel into 
existing federally owned space--a shift that could, however, often 
require major renovations--or by purchasing or constructing new space. 
GSA officials stated that some high-value leases represent short-term 
or unstable space needs--such as a 5-year lease providing space for an 
agency that plans to move into a federally-owned space when 
renovations are completed. In such cases, leasing is the most 
appropriate solution. However, officials concurred that most of the 
high-value leases consist of long-term, relatively stable, mission-
central needs for federal agencies--space needs that in many cases are 
likely to exist for longer than 20 years--and that in these cases, 
ownership is the most cost-effective solution over time. However, GSA 
officials stated that limited availability of existing federal space 
and funding for its capital program have given GSA no choice but to 
continue to lease space for these government needs--including some 
space needs that have existed for the past 40 years or more and have 
been met by leasing through multiple competitive procurements. 

Lack of Transparency in Lease Prospectuses Limits Alternatives 
Analysis: 

Although many of the high-value leases are candidates for ownership, 
GSA does not include any analysis of such alternatives in its lease 
prospectuses. According to capital-planning principles, alternatives 
evaluation should be done for all major capital assets, including 
leases. The lease prospectuses also lack other information that could 
help decision makers consider the wisdom of continuing to lease and 
better inform their decision making. In addition, we found that nine 
high-value leases did not go through the prospectus process. 

Prospectuses Lack Transparency on Alternative Approaches to Meeting 
Space Needs: 

OMB's Circular A-94 requires that all leases of capital assets must be 
justified as preferable to direct government purchase and ownership; 
for major acquisitions, this should be done through an analysis of the 
costs over time of leasing versus owning the asset. The purpose of 
this requirement is to promote efficient resource allocation through 
well-informed decision-making by the federal government. Because the 
prospectus is to be reviewed and approved by both OMB and 
congressional authorizing committees prior to GSA's entering into the 
lease, it is a key document for communicating GSA's decision-making 
process. GSA is not required by law to include the results of these 
analyses in the prospectus; however, according to GSA officials, GSA 
includes the results of an alternatives analysis in its prospectuses 
for capital construction and renovation projects but does not do so in 
its prospectuses for leases. In the 1980s and early 1990s, GSA did 
include such an analysis in its lease prospectuses.[Footnote 29] 
However, in the mid-1990s, according to GSA officials, these analyses 
were discontinued for lease prospectuses in the context of the limited 
availability of funding for most construction or purchase alternatives 
to leasing. 

OMB staff stated that they advised GSA officials to stop including the 
results of a lease versus purchase analysis in lease prospectuses 
because OMB had determined that the scoring analysis--in which, for an 
operating lease, it is shown that the present value of the minimum 
lease payments over the life of the lease does not exceed 90 percent 
of the fair market value of the asset at the inception of the lease--
was sufficient information to demonstrate that leasing was the most 
cost effective option over the term of the lease. GSA officials stated 
that there was also a sense that in an environment of scarce capital 
resources for purchase or construction, there was no benefit in 
performing a lease versus purchase analysis--which often showed that 
ownership would be more cost effective than leasing over 30 years--
since GSA did not expect to receive funding for capital construction 
or acquisition. GSA officials stated that in light of a significant 
decline in funding for new federal construction, even if a lease 
versus purchase analysis showed that ownership was less expensive, the 
lack of availability of funding for construction meant that GSA 
considered this a non-viable alternative. 

The decision to halt a formal lease versus purchase alternatives 
analysis for high-value leases has limited the transparency of the 
prospectus process. First, the lack of a lease versus purchase 
analysis in the prospectus means that government decision makers do 
not have information on the extent to which the proposed lease is more 
costly than owning over the long-term. When GSA did perform the 30-
year-net-present-value analysis for lease prospectuses, there were 
times when the analysis showed that leasing was the most cost 
effective option. For example, in our case studies for this review, 30-
year present value analyses were completed for two 20-year FAA leases, 
which became effective in 1989 and 1992.[Footnote 30] In one instance, 
the analysis estimated it was more cost effective to lease (a $3.3 
million savings in Washington state). The other analysis estimated 
that it was more cost effective to own (a $2.1 million savings in 
Texas). Of the 218 leases in our review, 27 had prospectuses that 
included a 30-year-net present value analysis of leasing versus 
owning. Overall, across these 27 prospectuses, we found that over 30 
years, the government would spend an estimated additional $866 million 
by leasing instead of owning, or approximately 18 percent of the total 
expected cost. While these prospectuses were all developed from 1986 
through 1993, when GSA was regularly including such analyses in the 
prospectuses, due in part to some gaps of several years between the 
prospectus and the date the related lease became effective, the 
related leases have expiration dates ranging from 2012 to 2027. 
Without such information on more recently proposed high-value leases, 
GSA and federal decision makers, including Congress, lack information 
on the long-term cost consequences of decisions to lease rather than 
own that were proposed after GSA stopped including such an analysis in 
prospectuses. 

Second, while the scoring analysis may allow the government to ensure 
that lease payments over the lease term are less than the fair market 
value of the asset, and thus that ownership of the asset stays with 
the lessor over the course of the lease, it does not help decision 
makers evaluate whether leasing is the preferred solution to an 
agency's space need. The scoring analysis is based on the lease term, 
not on the projected length of the government's space need. GSA 
officials stated that, given its limited access to capital funds, GSA 
works to ensure that all of its leases score as operating leases, 
because, as explained previously, for operating leases, only the 
amount needed to cover the minimum rent payment for 1 year must be 
scored against GSA's fiscal year budget authority. For a lease to 
score as an operating lease, the present value of cumulative minimum 
lease payments over the lease term must be no more than 90 percent of 
the fair market value of the asset.[Footnote 31] According to GSA 
officials, there are cases in which GSA has negotiated a shorter term--
such as 5 or 10 years--for a high-value lease for operational 
flexibility, such as when GSA is working on renovating federal space 
that it plans to move the personnel occupying the lease into when the 
renovations are complete. However, GSA officials stated that at times, 
GSA has had to negotiate shorter lease terms primarily because that 
will ensure that the lease will score as an operating lease--
regardless of how long the agency expects to need the space. As a 
result, while the lease term established represents the legal 
responsibility of the government to pay for the lease, it may not 
reflect the length of the need for the space or therefore the true 
cost of long-term leasing. Furthermore, some GSA and private sector 
officials stated that, at times, limiting the length of a lease term 
to ensure that the lease will score as an operating lease can be 
costly. For example, because lessors prefer the certainty of a long-
term lease, they may be willing to negotiate lower annual payments for 
longer terms. In another example, in cases when the commercial real 
estate market is struggling, GSA may not be able to take advantage of 
economic conditions by locking in a low annual rent for as long as 
possible. 

In addition to the limitations of the scoring analysis for analyzing 
whether leasing is the best alternative, prospectuses are developed as 
a "snapshot" in time, covering one lease term, and do not indicate the 
extent to which the agency has had a history in the current location 
or the expected duration of the agency's space need. As a result, 
decision makers have no context with which to make fully informed 
decisions regarding the most cost effective way for the space need to 
be addressed. According to GSA officials, when there is a short-term 
need for a high-value lease, GSA may know how long the agency will 
need the space, and in those cases, may have included this information 
in the prospectus. However, GSA officials stated that in many cases 
neither GSA nor the agency knows how long the agency will need the 
space, as changes to an agency's mission and technology over time can 
affect space needs. Nevertheless, in our review, we found that 9 of 
our 12 case study leases included space for long-term or mission 
critical space needs for tenant agencies. Some of the tenant agencies 
in these leases have been housed in successive operating leases far 
longer than GSA's maximum 20-year lease term--situations that would 
lend themselves to an analysis of the extent to which it would be more 
cost effective for the government to own rather than lease. For 
example: 

* One high-value lease we examined provides space for the 
Environmental Protection Agency's (EPA) 10th Region headquarters in 
Seattle, Washington. EPA was the first tenant in the building when it 
was constructed over 40 years ago. At the time of our review, GSA was 
negotiating a new 10-year lease in the same space. However, the 
prospectus provides no indication of how long EPA has been in the 
building or EPA's expected future need for the space. The new lease, 
if completed, will therefore result in 50 years of continuous 
occupation of this leased space in downtown Seattle--with no analysis 
of the cost implications of doing so and no recent consideration of 
the alternative of constructing owned space. According to GSA 
officials, there is no federally-owned vacant space in Seattle that 
would meet EPA's needs. 

* Another high-value lease we examined provides space for HHS in 
Rockville, Maryland. According to GSA officials, the building was 
built for HHS in 1970 and has been continuously occupied by HHS for 
over 40 years. A new 15-year lease for the same building begins in 
July 2015 and will expire in 2030--at which point HHS will have 
occupied the same building for close to 60 years. The new lease 
results in a space reduction at that location of about 28 percent. In 
this case, the lessor's most recent proposal, which GSA selected for 
the new lease through a competitive bid process, included a complete 
renovation of the existing building. GSA officials stated that the 
financing of renovations in a leased building is the lessor's 
responsibility. According to several private sector officials, one 
advantage of GSA's leasing rather than owning is that the private 
sector can often finance major renovations for which the public sector 
would have difficulty securing funding. In the case of the HHS 
building, the renovation is currently ongoing with plans to be 
completed in 2016. According to the lessor, in this case, the major 
renovations were financed based on the strength and security of the 
lessor having a long-term government lease. The challenge of funding 
renovations of federally owned space is something we have discussed in 
previous work.[Footnote 32] However, GSA officials noted that 
generally, a lessor's investments into building renovations--including 
financing costs--are passed on to the leaseholder through the cost of 
the monthly lease payments over time--and the financing costs are 
likely to be higher than the costs to the government of borrowing 
money from the Treasury. Considerations of such trade-offs could be 
factored into an analysis of whether the government should own or 
lease such high-value space needs, but the prospectus for this lease 
did not consider alternatives to continuing to lease this long-term 
space need. 

Prospectuses Lack Transparency on Costly Agency Investments Needed for 
Leased Space: 

In addition to the lack of an analysis of the long-term costs of 
leasing versus owning, lease prospectuses also lack transparency 
regarding the costs of tenant agency investments needed to meet 
mission-critical needs. These investments constitute a risk to the 
government, and risk is one of the factors managers in leading 
organizations consider when approving investment proposals. High-value-
leases often house mission-critical activities for tenant agencies, 
such as the national headquarters for the Department of Transportation 
in Washington, D.C., and the command center for Department of State's 
(State) diplomatic security operations in Rosslyn, Virginia. As such, 
tenant agencies at times have particular mission-related needs for the 
space that can add to the complexity and cost of the lease. GSA 
officials stated that when GSA submits a prospectus, GSA may not know 
which building the agency will occupy, since that is generally 
determined through a competitive process. However, GSA and the agency 
are likely to have general information on the complexity and likely 
costs of an agency's mission-related needs for the space, and the lack 
of such information in the prospectus reduces the transparency of the 
process. Moreover, according to GSA officials, tenant improvements 
depreciate over time and agency requirements can change. Nevertheless, 
when an agency makes a significant investment into a leased facility 
or GSA leases a space for an agency primarily due to a mission-related 
need for a very specific geographical location, there is a risk that 
when the lease expires, the agency may have to move and re-invest time 
and money into replicating the investment in a different facility or 
that the lessor may ask for a higher rent in the next lease knowing 
that any competitor will have to incorporate the costs of replicating 
the investment into its offer[Footnote 33] or that there may be no 
competitors within a very narrow geographic range. Examples in our 
case studies of such situations include the following: 

* One high-value lease of about 350,000 rentable square feet houses 
State's Bureau of Diplomatic Security in Rosslyn, Virginia.[Footnote 
34] State considers the Rosslyn location essential because of its 
proximity to State's headquarters in Washington, D.C., and to other 
State leases in Rosslyn. The building was constructed to State's 
security specifications, including a hardened lobby and exterior and 
extra security features in the parking garage. In addition, according 
to State officials, State invested an additional $80 to $100 million 
in secure technology and conference rooms with technologically 
advanced security features. However, GSA signed this as a 10 year 
lease, mostly, according to GSA officials, so that it would score as 
an operating lease. In this case, a 10 year lease scored at 83 percent 
of the fair market value--and, according to GSA officials, was the 
longest term GSA could get for the lease without risking that the 
lease would score as a capital lease. As the 10-year lease's 
expiration came up in 2012, GSA initially opened the competition for 
this requirement to a wider geographical area than Rosslyn. However, 
due to State's concerns about potentially having to move farther away 
from State's headquarters--which State sees as compromising to its 
mission--plus the difficulty and expense of replicating all of the 
security-related technology invested in this building, State asked 
that the competition be canceled. In June 2013, GSA renewed this lease 
for 5 years, with an option to purchase the building at a market rate 
after the 3rd year. According to State officials, the 5-year extension 
with purchase option will provide the government time to find and 
evaluate government-owned solutions to this long-term requirement. GSA 
officials agreed that the government should consider ownership when a 
large investment is required to move or replicate the current space. 

* In another example, a high-value lease for two smaller agency 
headquarters--the Federal Maritime Commission and the National 
Archives and Records Administration, in Washington, D.C., took up much 
of an entirely federally-leased building across the street from the 
Government Printing Office. As the January 2013 expiration date for 
this lease approached, GSA decided that going forward, each agency 
would have its own lease, each of which would be below the prospectus 
threshold. However, both agencies ended up staying in the same 
building. According to GSA officials, because the National Archives 
and Records Administration communicates remotely via laser links with 
the Government Printing Office in order to complete a mission-required 
activity of daily printing of The Federal Register, it needed to 
remain within a half mile of the Government Printing Office. When the 
lease came up for expiration, GSA did a competitive bidding process 
within a very narrowly defined geographical area that resulted in no 
satisfactory offers from anyone other than the current landlord--
resulting in difficult renegotiations with the landlord to remain in 
the same building at a rate GSA considered acceptable. 

Prospectuses Lack Transparency on Extent to Which GSA Is Leasing 
Entire Buildings: 

Another element that represents a risk for the government and may be 
relevant in considering which of the high-value leases would be the 
most cost-effective to target for ownership but that is not explored 
in the prospectus process is the extent to which GSA is leasing entire 
buildings. We found that almost half of GSA's high-value leases are 
either for an entire building or almost an entire building, or are in 
buildings where GSA has other leases so that GSA is effectively 
leasing the entire building. Specifically, 48 percent of these leases 
are in buildings that are 90 percent or more federally leased, and 
almost 60 percent are in buildings that are at least 75 percent 
federally leased. For example, GSA currently leases an entire building 
of about 300,000 rentable square feet in Ft. Worth, Texas, for two 
agencies--FAA occupies the majority of the space and the FBI occupies 
the rest. Both agencies have occupied this space for the past 20 
years. As the expiration date for this lease approached, FAA indicated 
a requirement for increased square footage in order to consolidate 
staff into this lease from other nearby leased locations. As a result, 
GSA, through a competitive bidding process, has selected a developer 
to build a facility to meet FAA's needs that GSA has agreed to lease 
for 20 years and that FAA plans to fully occupy. 

According to GSA officials, the prospectuses typically provide 
information only on the space needs for the particular lease (or in 
some case, leases) being proposed in the prospectus, and do not 
include information on any other leases that may be ongoing in the 
same building, or on the percentage of the entire building that GSA is 
leasing. Without this disclosure, decision makers have no way to fully 
assess the investment GSA is proposing. For example, for one of our 
case study leases in Washington, D.C., the prospectus proposed a 
replacement lease for up to 294,000 rentable square feet for several 
agencies currently located in a number of leases in one building--
without mentioning that another GSA lease was also in that same 
building. The prospectus also did not include the information that 
together these two leases covered about 65 percent of the entire 
building, which is in a prime location in Washington, D.C., near the 
White House. According to our analysis of GSA data, in 6 other cases, 
high-value leases are in a building with either one or two other GSA 
leases so that altogether GSA's leases encompass over 90 percent of 
the building's occupancy. The lack of this contextual information in 
the prospectus further reduces the transparency with which GSA 
presents its leasing portfolio to government decision makers. 

Some High-Value Leases Did Not Go Through the Prospectus Process, 
Further Limiting Transparency: 

Most of the 218 high-value leases had a prospectus or separate 
legislative authority indicating congressional committees' approval of 
the lease. However, for 9 of these leases--involving a total net 
annual rent of about $50.2 million--GSA officials could not provide 
documentation showing congressional committees' approval or 
legislative authority.[Footnote 35] According to GSA officials, in 
three of these cases, GSA mistakenly did not provide a prospectus to 
Congress. For example, one of our case study leases, a 146,000 square 
foot lease in Los Angeles that houses the U.S. Army Corps of 
Engineers, has a 10-year term (from May 3, 2006 through May 2, 2016) 
with a net annual rent of $3.2 million, thus over the fiscal year 2012 
prospectus threshold of $2.79 million. However, GSA did not submit a 
prospectus for this project prior to the beginning of the lease term 
or otherwise notify or obtain approval from the congressional 
authorizing committees. According to GSA officials, GSA's regional 
office in San Francisco, California, did not take the proper steps in 
analyzing lease costs to determine whether a prospectus was needed for 
the project. Since 2006, GSA headquarters has substantially revised 
and standardized its guidance on prospectus-level leases, a revision 
that GSA officials in three regions told us was helpful in preventing 
such mistakes. 

In four cases, the lease started below the prospectus threshold, but 
over time new space was added in supplemental lease agreements that 
put the lease over the prospectus threshold. GSA officials stated that 
this occurred due to subsequent expansion to meet unforeseen agency 
needs. For example, this occurred with three of the Washington, D.C., 
metro area high-value leases. When this occurs, GSA officials stated 
that generally, GSA does not go back to Congress with a prospectus for 
approval until the lease approaches expiration. At that point, if the 
continuing space need is over the prospectus threshold, GSA will 
provide a prospectus to Congress. The result of these situations is a 
further limitation on the transparency of the prospectus process in 
providing decision makers information on the full scope of GSA's high-
value leased portfolio--information that could be used to analyze the 
extent to which leasing is the best alternative in these cases. Not 
submitting a prospectus for congressional approval hinders the ability 
of the appropriate congressional committees to fulfill their oversight 
responsibilities for all prospectus-level leases. According to GSA 
officials, although violations of process and policy are relatively 
rare, GSA plans to enhance its internal controls to reduce instances 
of prospectus-level leases not going through the proper process in the 
future. Table 1 provides a summary of the high-value leases we 
identified that did not have a prospectus or other legislative 
approval. 

Table 1: GSA High-Value Leases without a Prospectus, as of November 
2012: 

Architect of the Capitol, Department of Labor, and GSA; Washington, DC; 
Lease term: 1992-2022; 
Net annual rent (2012): $25.80 million; 
Rentable square feet: 992,546; 
GSA's stated reason for lack of prospectus: Congressional briefing 
before lease award. 

Department of Homeland Security/CBP; Long Beach, CA; 
Lease term: 2001-2021; 
Net annual rent (2012): $3.21 million; 
Rentable square feet: 143,732; 
GSA's stated reason for lack of prospectus: GSA omission. 

Drug Enforcement Administration; St. Louis, MO; 
Lease term: 2002-2022; 
Net annual rent (2012): $3.42 million; 
Rentable square feet: 87,824; 
GSA's stated reason for lack of prospectus: Lease's net annual rent was 
below the prospectus threshold when the lease was signed, but because 
of increases in space incorporated through supplemental lease 
agreements, it eventually exceeded the prospectus threshold. 

Department of Homeland Security; Arlington, VA; 
Lease term: 2006-2016; 
Net annual rent (2012): $2.86 million; 
Rentable square feet: 89,451; 
GSA's stated reason for lack of prospectus: Lease's net annual rent was 
below the prospectus threshold when the lease was signed, but because 
of increases in space incorporated through supplemental lease 
agreements, it eventually exceeded the prospectus threshold. 

U.S. Army Corps of Engineers; Los Angeles, CA; 
Lease term: 2006-2016; 
Net annual rent (2012): $3.23 million; 
Rentable square feet: 145,653; 
GSA's stated reason for lack of prospectus: GSA omission. 

Department of Homeland Security/ICE; Atlanta, GA; 
Lease term: 2007-2022; 
Net annual rent (2012): $2.98 million; 
Rentable square feet: 90,688; 
GSA's stated reason for lack of prospectus: GSA omission. 

Not shown; Arlington, VA; 
Lease term: 2008-2018; 
Net annual rent (2012): $2.83 million; 
Rentable square feet: 79,070; 
GSA's stated reason for lack of prospectus: Lease's net annual rent 
was below the prospectus threshold when the lease was signed, but 
because of increases in space incorporated through supplemental lease 
agreements, it eventually exceeded the prospectus threshold. 

Department of the Treasury; Washington, DC; 
Lease term: 2010-2014; 
Net annual rent (2012): $3.02 million; 
Rentable square feet: 81,088; 
GSA's stated reason for lack of prospectus: Lease's net annual rent 
was below the prospectus threshold when the lease was signed, but 
because of increases in space incorporated through supplemental lease 
agreements, it eventually exceeded the prospectus threshold. 

Department of the Treasury; Franklin, TN[A]; 
Lease term: 2012-2032; 
Net annual rent (2012): $2.85 million; 
Rentable square feet: 135,373; 
GSA's stated reason for lack of prospectus: The rent was significantly 
reduced in later years of the lease, so the "levelized" net annual 
rental never exceeded prospectus level. 

Total: 
Net annual rent (2012): $50.20 million[B]; 
Rentable square feet: 1,845,425. 

Source: GAO analysis of GSA data. 

[A] This lease met our criteria as a high-value lease because its 
fiscal year 2012 net annual rent exceeded the fiscal year 2012 
prospectus threshold of $2.79 million. However, unlike our methodology 
for identifying high-value leases, GSA's calculations to determine 
whether a lease exceeds the prospectus threshold involve levelizing 
the rent over the term of the lease. According to GSA officials, in 
this case, the levelized net annual rent (a computation of the net 
annual rent each year if the lease were to be paid in equal annual 
payments throughout the lease term) is below the prospectus threshold. 

[B] Net annual rent does not total due to rounding. 

[End of table] 

GSA Has Not Prioritized Lease Projects for Ownership: 

Without evaluating alternatives to continuing to lease its high-value 
leases, GSA does not have information that it could use to prioritize 
potential capital projects for those space needs currently in high-
value leases for which it would most benefit the federal government to 
own rather than lease. According to our and OMB's analysis of leading 
capital planning practices, leading organizations have processes in 
which proposed capital investments are compared to one another to 
create a portfolio of major assets ranked in priority order. In our 
July 2012 report on GSA's Federal Buildings Fund,[Footnote 36] we 
found that GSA's project prioritization process for its capital 
program partially met leading practices but that it lacked 
transparency in that we were unable to determine how GSA used its 
criteria to prioritize major projects. We recommended that GSA 
document in its annual budget request to OMB how it uses its 
prioritization criteria to generate its annual and 5-year lists of 
prioritized projects to ensure that Congress understands the rationale 
behind the prioritized project lists and that GSA is maximizing return 
on Federal Buildings Fund investments. According to GSA officials, GSA 
is currently working to develop a document that will accompany its new 
capital plan and clarify its prioritization process for decision 
makers. 

GSA officials told us that, with regard to high-value leases, GSA 
addresses its portfolio on an asset-by-asset basis. While it has not 
performed a systematic analysis to determine which space needs 
represented by high-value leases would be most beneficial to move to 
federal ownership--or prioritized these space needs for ownership 
accordingly--in some cases, GSA has turned leased space into federally-
owned space. For example, GSA determined it would be more cost-
effective to purchase rather than continue leasing the Columbia Plaza 
Building, which is occupied by State in Washington, D.C. A purchase 
option had been included in the 1992 lease at the request of Congress, 
and when exercised, it allowed GSA to purchase the building for about 
$100 million, well below the 2006 appraised value of $190 million. In 
2009, Congress made funds available from the Federal Buildings Fund 
for the purchase. GSA officials stated that pursuing this purchase was 
clearly beneficial to the federal government, since the high-priority 
tenant was already in residence and committed to a long-term 
occupancy, leasing elsewhere would be costly, and the building would 
immediately become an income-generating asset. These types of 
considerations could be appropriate criteria for GSA to use in 
considering which of the agency space needs currently occupying high-
value leases should be prioritized for a federally-owned solution. 
However, without a portfolio approach in which high-value leases are 
systematically evaluated to determine which space needs should be the 
highest priority for transferring to federal ownership, GSA has no 
documentation to help it or government decision-makers determine how 
best to invest limited capital funds. 

Two elements further limit the vision and comprehensiveness of GSA's 
strategic capital planning process--GSA's lack of consideration in its 
capital-planning process of the extent to which the existing high-
value leases should be targeted for ownership and the lack of criteria 
to analyze and prioritize these projects among the other projects GSA 
considers for capital funding. Without a transparent prioritization of 
all major projects that would be more cost effective to own than to 
lease over the long term, GSA's analysis of its portfolio is 
incomplete and is lacking core information to help decision makers 
work with GSA to manage its portfolio in a cost effective manner. 

GSA Has Not Incorporated High-Value Leasing into a Long-term Capital 
Plan: 

Both OMB and GAO guidance emphasize the importance of developing a 
long-term capital plan to guide the implementation of organizational 
goals and state that making informed capital investment decisions 
requires full information about an agency's current and long-term 
needs, alternative courses of action, and how potential projects 
compare among each other.[Footnote 37] Without having taken these 
steps for high-value leases, GSA has not incorporated the high-value 
leases that should be the highest priority for ownership into a long-
term capital plan. Since 1991, we have reported that GSA would benefit 
from a comprehensive capital plan, stating that a capital plan could 
provide information on the potential benefits and cost savings of 
competing capital projects and provide a better context for making 
capital investment decisions.[Footnote 38] Recently, in our 2012 
report on GSA's Federal Buildings Fund, we found that GSA's long-term 
capital plan minimally conformed to leading practices in that it did 
not incorporate the following: a baseline needs assessment including 
where there might be gaps in what GSA's real property portfolio 
provides; an explanation of why projects selected are the best 
alternative; and alternatives to meeting project goals.[Footnote 39] 

Instead, among other things, in July 2012, we found that GSA did not 
rank all of its proposed projects together--instead ranking courthouse 
and land port-of-entry projects in their own list--making it difficult 
to compare GSA's prioritization of projects across its portfolio. We 
found that a comprehensive long-term capital plan could further GSA's 
ability to make informed choices about long-term investment decisions 
and recommended that GSA (1) document in its budget submission how it 
prioritizes capital investments and (2) develop and annually submit a 
5-year long-term capital plan to OMB and Congress. GSA agreed with our 
recommendations. As of May 2013, GSA officials stated that GSA was 
undertaking a major revision of its capital plan to implement these 
recommendations. 

Just as GSA's current capital plan does not prioritize all of its 
proposed capital projects in the same list or clearly explain why 
projects selected are the best alternative, GSA does not have a 
documented analysis of which, if any, of its high-value leases should 
be targeted for ownership and how such ownership might compare cost-
wise to other capital projects it has included in its capital plan or 
budget request. The leasing-related strategic documents that GSA 
provided to us focus on optimizing the portfolio at the agency level 
through GSA's recent customer portfolio planning effort. While this 
effort may improve GSA's leased portfolio, it does not allow decision 
makers to compare the financial implications of GSA's high-value 
leases portfolio-wide--across agencies and against capital projects. 
This lack of information on the long-term consequences of high-value 
leases could inadvertently contribute to the federal government's 
overspending on agencies' long-term space needs--even as the federal 
government tries to trim costs through reducing its leased footprint. 
In contrast, a strategic vision for these leases that incorporates 
leading practices of capital decision making could better position the 
federal government to save money over time. Such a vision could take 
into account agencies' current efforts to reduce space needs. For 
example, in considering the potential to move an agency division 
currently occupying leased space into federally owned space, GSA could 
incorporate into its analysis the extent to which additional leases, 
particularly smaller leases for the same agency in the same area, 
could be brought into newly constructed facilities if space needs 
continued to contract over time. Increased transparency could also 
promote collaboration with decision makers and better position GSA and 
tenant agencies to address funding and other challenges that are 
impeding progress in GSA's efforts to reduce the federal real property 
footprint through improved space utilization as leases expire. 
According to GSA officials, GSA would welcome the opportunity to 
convert some of its high-value leases to federal ownership, stating 
that its reliance on costly operating leases has increased in recent 
years as a result of constraints on the Federal Buildings Fund and the 
budget scoring of leases. 

Conclusions: 

By focusing on cost savings through limiting the federal real property 
footprint, GSA's efforts to proactively work with federal agencies to 
consolidate high-value and smaller leases as they expire, to move some 
high-value leases into government-owned space, and to help agencies 
increase space efficiency through such efforts as more open floor 
plans and increased telework have had some positive results. GSA's 
work to optimize federal agency real property portfolios through 
better planning is also a step in a right direction. So far, these 
efforts are done for the most part on a lease-by-lease or agency-by-
agency basis. Our work on leading practices in capital decision making 
has emphasized that vision and leadership are crucial to the success 
of leading organizations. GSA, in its role as manager of real property 
for many civilian federal agencies, has the potential to set a vision 
and strategy for federal real property that addresses needs and 
priorities across federal agencies. However, with regard to high-value 
leases, which include space needs for over 40 federal agencies and 
departments and represent about one-third of GSA's total net annual 
rent for leased facilities, GSA lacks a strategic focus for 
determining which should be converted to ownership. 

Indeed, as agencies work to shrink their footprint through increased 
space efficiency and telework, it could be an ideal time to make 
carefully targeted investments into owned facilities that would help 
move the federal government out of long-term, high-value leases and 
into efficient, federally owned space with lower long-term costs. 
However, the lack of transparency in GSA's lease prospectuses means 
that Congress may not fully understand the length of an agency's space 
needs and the costs of continuing to handle these long-term needs 
through leasing rather than ownership. In addition, if the 
transparency of the prospectuses is improved, Congress would still be 
considering each leasing action separately; to strategically manage 
these leases, it is important to consider them in the context of GSA's 
entire real property portfolio, whether at the regional level for 
space planning or the national level for considering where to invest 
scarce federal funds. GSA lacks analysis of the effect of these long-
term leases on its portfolio and on the tenant agency in line with 
capital-planning principles--and it therefore cannot share this 
information with Congress, for example, by incorporating proposals for 
those space needs currently housed in high-value leases for which it 
would be most beneficial to transfer to an ownership solution into the 
capital plan we recommended that GSA develop in 2012. 

Moreover, cases in which high-value leases lack a prospectus further 
reduce the transparency of GSA's full portfolio. Although these leases 
have been in effect for several years, it is nonetheless important 
that information on them be submitted to the appropriate committees to 
maintain GSA's accountability to Congress in this area and allow the 
committees to exercise their oversight responsibility. Such 
information would provide GSA, OMB, and congressional decision makers 
with critical, transparent information on how to strategically manage 
GSA's real property portfolio. 

Recommendations: 

To enhance transparency and allow for more informed decision making 
related to the appropriate role of leasing in GSA's real property 
portfolio, we recommend that the Administrator of GSA take the 
following three actions: 

* Include in the lease prospectus a description of the length of time 
that an agency estimates it will need the space, an historical account 
of how long the agency has been in the particular building it is 
occupying at the time of the prospectus, and any major investments the 
agency will have to make to the leased space to meet its mission. For 
those spaces for which the agency has a long-term projected need, also 
include an appropriate form of cost-to-lease versus cost-to-own 
analysis. 

* Report to the appropriate congressional committees any leases above 
the prospectus-threshold that did not follow the congressional 
prospectus process. 

* Develop and use criteria to rank and prioritize potential long-term 
ownership solutions to current high-value leases among other capital 
investments. Use this ranking to create a long-term, cross-agency 
strategy that facilitates consideration of targeted investments in 
ownership. This strategy could be incorporated initially as a separate 
but related part of the capital plan we previously recommended that 
GSA develop in 2012, or integrated into the capital plan itself. 

Agency Comments and Our Evaluation: 

We provided a draft of this report for review and comment to GSA and 
OMB. We also provided a draft of this report for review and comment to 
several other agencies we spoke with during the engagement because 
they are tenants of GSA leases, including EPA, HHS, the U.S. 
Department of Agriculture (USDA), Department of Defense (DOD), 
Department of Justice (DOJ), and Department of Transportation (DOT). 
GSA concurred with our recommendations and provided technical 
clarifications, which we incorporated as appropriate. GSA's comments 
are discussed in more detail below. GSA's letter is reprinted in 
appendix II.[Footnote 40] OMB did not comment on the draft report or 
recommendations but provided technical clarifications, which we 
incorporated where appropriate. EPA, HHS, USDA, DOD, DOJ, and DOT did 
not provide comments on the draft report. 

GSA agreed with the report's recommendations and stated that it will 
take action to implement them. GSA stated that it remains committed to 
sharing all available client and market information with Congress in 
the prospectus process. However, GSA raised the concern that some 
information may not be included in prospectuses due to requirements of 
GSA's competitive real estate procurement process and today's 
uncertain budget environment. We agree that GSA must adhere to the 
requirements of its competitive procurement process in carrying out 
the prospectus process. However, in most cases, the additional 
information we recommended be incorporated into prospectuses either 
has been included in prospectuses in the past--such as a lease versus 
purchase analysis--or is general information. Moreover, the 
information we recommended be included, even if it was modified to 
some degree to ensure adherence to GSA's competitive procurement 
process, would provide valuable information to Congress that could 
help inform its decisionmaking in this area. Regarding the uncertain 
budget environment, we reiterate that as agencies work to cut costs 
through increased space efficiency and telework, it could be an ideal 
time to make carefully targeted investments into owned facilities that 
would help move the federal government out of long-term, high-value 
leases and into efficient, federally owned space with lower long-term 
costs. Improved transparency in GSA's lease prospectuses could help 
Congress fully understand the length of an agency's space needs and 
the costs of continuing to handle these long-term needs through 
leasing rather than ownership. 

As agreed with your office, unless you publicly 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 
Director of the Office of Management and Budget; the Administrators of 
General Services and Environmental Protection; and the Secretaries of 
Agriculture, Defense, Health and Human Services, Justice, 
Transportation, and State. In addition, the report will be available 
at no charge on GAO's website at [hyperlink, http://www.gao.gov]. 

If you or your staff have any questions, please contact me at (202) 
512-2834 or wised@gao.gov. 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. 

Signed by: 

David J. Wise: 
Director, Physical Infrastructure Issues: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

Our objectives were to (1) identify the characteristics of the General 
Services Administration's (GSA) high-value leases and what actions, if 
any, GSA has taken to reduce their cost, and (2) assess the extent to 
which GSA's capital-planning approach promotes informed decision 
making about leasing versus ownership. 

To identify the characteristics of GSA's high-value leases, we 
analyzed data provided by GSA from GSA's Real Estate Across the United 
States (REXUS) database to determine the number of active leases as of 
November 30, 2012, including those with a net annual rent at or above 
the fiscal year 2012 prospectus threshold of $2.79 million. We 
determined that 218 of GSA's leases met the criteria of being at or 
over this prospectus threshold, and we defined these as high-value 
leases for purposes of this report. We used data from GSA's central 
data system provided in building, space, lease, and rent files in our 
analysis to select and characterize the population of high-value 
leases. To determine whether these data were of sufficient reliability 
for our analysis, we reviewed the program documentation associated 
with the files and discussed various data elements with GSA staff 
responsible for the data. We also conducted our own electronic testing 
to check the consistency of the data and to reconcile the accuracy of 
certain lease numbers. We did not attempt to evaluate or test all of 
the aspects of the GSA data files, but instead focused on the high-
value leases. As a result of our review and discussions, we determined 
that the data in the files provided by GSA were of sufficient 
reliability to be used in our analysis and for the purposes of this 
report. 

We analyzed data on each of these assets to describe characteristics 
of these leases, including the amount of leased space, net annual 
rent, rentable square footage, lease term, and tenant. We also 
analyzed GSA data to determine the total number, square footage, and 
cost of all of its leases. We also reviewed the prospectuses or other 
legislative authority for the 218 high-value leases. For the 9 of the 
218 high-value leases that did not have a prospectus, we obtained 
additional clarification from GSA officials. In addition, we reviewed 
GSA documents such as The State of the FY2011 Portfolio to obtain 
general information on the agency's real property portfolio. 

To inform both objectives, we selected a non-generalizable sample of 
12 high-value leases from the list of 218 we had identified to examine 
more closely as case studies. In selecting the 12 case study leases, 
we focused on leases that were near expiration or had recently been 
entered into in order to facilitate discussions with GSA on its 
decision-making process for these leases. We also focused on leases 
that were in holdover status, represented a variety of tenant 
agencies, and had a variety of net annual rents from close to the 
prospectus threshold of $2.79 million to significantly above the 
prospectus threshold. Because the majority of high-value leases are 
located in GSA's National Capital Region (representing Washington, 
D.C., and parts of Northern Virginia and suburban Maryland), we 
selected six of the leases from that region. We selected the other six 
leases from the Northwest/Arctic, Pacific Rim, and Greater Southwest 
Regions because these regions were geographically diverse and had a 
relatively large portfolio of high-value leases. These 12 selected 
leases represented space for 14 different federal tenants, with 
rentable square feet ranging from over 99,000 to almost 802,000. Their 
net annual rent ranged from about $2.9 million to almost $20 million. 
For these leases, we reviewed numerous documents, including the lease 
contract and supplemental lease agreements, prospectus, House and 
Senate authorizing committees' resolutions approving the prospectus, 
scoring analysis, and space plan. We also interviewed officials most 
knowledgeable about these leases from GSA regional and local offices 
and from the tenant agencies. In addition, we reached out to the 
lessors and, to the extent that they were willing, interviewed them 
about their experience working with GSA on the lease. We toured 
several of these buildings to inform our discussion of these leases. 
Our findings from these case studies cannot be generalized to the 
universe of 218 high-value leases we identified or to GSA's leased 
portfolio. However, they illustrate examples of broader challenges and 
opportunities GSA faces in managing its high-value lease portfolio. In 
addition, we reviewed relevant legislation, GSA guidance, our prior 
work, and industry reports and studies related to federal leasing of 
real property. We interviewed GSA headquarters officials and regional 
officials in the National Capital, Northwest/Arctic, Pacific Rim, and 
Greater Southwest Regions. Together, these regions have more than 70 
percent of the 218 high-value leases we identified. We also 
interviewed OMB staff, GSA Inspector General Office officials, and 
numerous private sector officials with experience in working with GSA 
on high-value leases. 

To assess the extent to which GSA's capital planning approach promotes 
informed decision making about leasing versus ownership, in addition 
to the above steps, we analyzed our and OMB's work on leading 
practices in capital planning. We identified leading practices for 
using information to make capital investment decisions from GAO's 
Executive Guide[Footnote 41] and OMB's Capital Programming Guide. 
[Footnote 42] We also drew from the National Research Council's 
research in this area. In addition, we reviewed our recent work on 
capital planning in the context of GSA's Federal Buildings Fund. 
[Footnote 43] We assessed whether GSA's guidance practices conformed 
to the criteria established in these guides in the areas of 
alternatives evaluation, project prioritization, and long-term capital 
planning. We reviewed GSA documents, including its Leasing Desk Guide, 
budget requests for the 4 fiscal years, most recent capital plan 
(fiscal year 2011), most recent call to regions regarding prospectus 
level leases--the Capital Investment and Leasing Program (CILP plan), 
criteria for ranking proposed capital projects, and GSA data and 
information on holdovers in 2012 and lease losses for fiscal years 
2005 through 2011. We also interviewed GSA officials in the Office of 
Portfolio Management to understand GSA's perspective on capital 
planning in the context of its high-value leased portfolio. 

We conducted this performance audit from September 2012 to September 
2013 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. 

[End of section] 

Appendix II: Comments from the General Services Administration: 

GSA: 
The Administrator: 
U.S. General Services Administration: 
1800 F Street, NW:
Washington, DC 20405:
Telephone: (202) 501-0800:
Fax: (202) 219-1243: 

September 9, 2013: 

The Honorable Gene L. Dodaro:
Comptroller General of the United States: 
U.S. Government Accountability Office: 
Washington, DC 20548: 

Dear Mr. Dodaro: 

The U.S. General Services Administration (GSA) appreciates the 
opportunity to review and comment on the draft report entitled 
"Greater Transparency and Strategic Focus Needed for High-Value GSA 
Leases," (GA0-13-744). The Government Accountability Office (GAO) 
recommends that the GSA Administrator enhance the transparency of 
decision making for high-value leases by: 

(1) Including more information in the lease prospectus to Congress, 
such as the agency's future need for the space, major investments 
needed, and an appropriate analysis of the cost of leasing versus the 
cost of ownership; 

(2) Reporting to the appropriate congressional committees any leases 
above the prospectus-threshold that did not follow the congressional 
prospectus process; and; 

(3) Prioritizing potential ownership solutions for current high-value 
leases to help create a long-term strategy for targeted ownership 
investments. 

GSA agrees with the above recommendations, and will take action to 
implement the recommendations, as detailed in our comments below. We 
remain committed to sharing all available client and market 
information with Congress in the prospectus process and beyond. GAO 
correctly points out that additional information would have been 
useful for Congress in evaluating certain leases. However, that is a 
product not of intentional withholding of information, but rather 
requirements of GSA's competitive real estate procurement process and 
today's uncertain budget environment. 

Technical comments that update and clarify statements in the draft 
report are enclosed. If you have any additional questions or concerns, 
please do not hesitate to contact me or Ms. Dorothy Robyn, 
Commissioner, Public Buildings Service, Ms. Robyn can be reached at 
(202) 501-1100. Staff inquiries may be directed to Martha Benson, 
Assistant Commissioner for Real Property Asset Management. Ms. Benson 
can be reached at (202) 208-7176. 

Sincerely, 

Signed by: 

Dan Tangherlini: 
Administrator: 

Enclosure: 

cc: David Wise, Director, Physical Infrastructure Issues: 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

David J. Wise, (202) 512-2834 or wised@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, David Sausville (Assistant 
Director), Carol Henn, Joshua Ormond, Kelly Rubin, Larry Thomas, Jim 
Ungvarsky, Pamela Vines, Crystal Wesco, Alwynne Wilbur, and Jade 
Winfree made key contributions to this report. 

[End of section] 

Related GAO Products: 

High-Risk Series: An Update. [hyperlink, 
http://www.gao.gov/products/GAO-13-283]. Washington, D.C. February 
2013. 

Federal Real Property: Improved Data Needed to Strategically Manage 
Historic Buildings, Address Multiple Challenges. [hyperlink, 
http://www.gao.gov/products/GAO-13-35]. Washington, D.C.: December 11, 
2012. 

Federal Real Property: Strategic Partnerships and Local Coordination 
Could Help Agencies Better Utilize Space. [hyperlink, 
http://www.gao.gov/products/GAO-12-779]. Washington, D.C.: July 25, 
2012. 

Federal Buildings Fund: Improved Transparency and Long-term Plan 
Needed to Clarify Capital Funding Priorities. [hyperlink, 
http://www.gao.gov/products/GAO-12-646]. Washington, D.C.: July 12, 
2012. 

Federal Real Property: National Strategy and Better Data Needed to 
Improve Management of Excess and Underutilized Property. [hyperlink, 
http://www.gao.gov/products/GAO-12-645]. Washington, D.C.: June 20, 
2012. 

Federal Real Property: Overreliance on Leasing Contributed to High-
Risk Designation. [hyperlink, 
http://www.gao.gov/products/GAO-11-879T]. Washington, D.C.: August 4, 
2011. 

Federal Real Property: Progress Made on Planning and Data, but 
Unneeded Owned and Leased Facilities Remain. [hyperlink, 
http://www.gao.gov/products/GAO-11-520T]. Washington, D.C.: April 6, 
2011. 

Federal Real Property: Strategy Needed to Address Agencies' 
Longstanding Reliance on Costly Leasing. [hyperlink, 
http://www.gao.gov/products/GAO-08-197]. Washington, D.C.: January 24, 
2008. 

Federal Real Property: Progress Made Toward Addressing Problems, but 
Underlying Obstacles Continue to Hamper Reform. [hyperlink, 
http://www.gao.gov/products/GAO-07-349]. Washington, D.C.: April 13, 
2007. 

Executive Guide: Leading Practices in Capital Decision-Making, 
[hyperlink, http://www.gao.gov/products/GAO/AIMD-99-32]. Washington, 
D.C.: December 1998. 

Real Property Management Issues Facing GSA and Congress. [hyperlink, 
http://www.gao.gov/products/GAO/T-GGD-92-4]. Washington, D.C.: October 
30, 1991. 

[End of section] 

Footnotes: 

[1] GAO, High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-13-283] (Washington, D.C., February 
2013). Other reasons for the designation included unreliable data, 
excess and deteriorating property, and challenges associated with 
protecting assets against the threat of terrorism. 

[2] In 1995, we found that 55 of 73 operating leases that GSA had 
entered into cost a total of $700 million more than construction.In 
1999, we reported that for eight of nine major operating lease 
acquisitions GSA had proposed, construction would have saved the 
government $126 million over 30 years. In 2008, we found that for four 
of seven GSA operating leases we analyzed, construction rather than 
leasing would have saved an estimated $83.3 million over 30 years. See 
GAO, Federal Real Property: Strategy Needed to Address Agencies' Long-
standing Reliance on Costly Leasing, [hyperlink, 
http://www.gao.gov/products/GAO-08-197] (Washington, D.C.: Jan. 24, 
2008), GAO, General Services Administration: Comparison of Space 
Acquisition Alternatives--Leasing to Lease-Purchase and Leasing to 
Construction, [hyperlink, http://www.gao.gov/products/GAO/GGD-99-49R] 
(Washington, D.C.: Mar. 12, 1999; General Services Administration: 
Opportunities For Cost Savings in the Public Buildings Area, 
[hyperlink, http://www.gao.gov/products/GAO/T-GGD-95-149], 
(Washington, D.C.: July 13, 1995); and General Services 
Administration: Comparison of Space Acquisition Alternatives--Leasing 
to Lease-Purchase and Leasing to Construction, [hyperlink, 
http://www.gao.gov/products/GAO/GGD-99-49R] (Washington, D.C.: Mar. 
12, 1999. 

[3] GAO, Federal Real Property: Strategic Partnerships and Local 
Coordination Could Help Agencies Better Utilize Space, [hyperlink, 
http://www.gao.gov/products/GAO-12-779] (Washington, D.C.: July 25, 
2012.) 

[4] Some agencies have their own independent leasing authority. 

[5] GSA adopted the definition of rentable square footage as defined 
in Building Owners and Managers Association (BOMA)/American National 
Standards Institute (ANSI) Standard Z65.1-1996. This standard was 
adopted in accordance with GSA's interest in conforming its practices 
to nationally recognized industry standards to the extent possible. 
Rentable square footage generally includes square footage of areas 
occupied by customers plus a prorated share of floor common areas such 
as elevator lobbies, building corridors, public restrooms, utility 
closets, and machine rooms. Rentable square footage also includes a 
prorated share of building common areas located throughout the 
building. Examples of building common space include ground floor 
entrance lobby, enclosed atrium, loading dock, and mail room. 

[6] 40 U.S.C. § 585(a). 

[7] GSA defines net annual rent as total operating rent minus 
operating expenses paid directly to the lessor in its PBS Leasing Desk 
Guide. 

[8] 40 U.S.C. § 3307(a), (h). GSA's authorizing committees are the 
Senate Committee on Environment and Public Works and the House 
Committee on Transportation and Infrastructure. 

[9] We selected leases that were nearing expiration or had recently 
been entered into in order to be able to discuss with GSA its 
decisionmaking process for these leases. 

[10] GAO, Executive Guide: Leading Practices in Capital Decision-
Making, [hyperlink, http://www.gao.gov/products/GAO/AIMD-99-32] 
(Washington, D.C.: Dec. 1998). In assisting with the development of 
OMB's Capital Programming Guide, we identified leading practices in 
capital decision making used by state and local governments and 
private sector organizations. 

[11] OMB, Capital Programming Guide, Supplement to Office of 
Management and Budget Circular A-11, Part 7: Planning, Budgeting, and 
Acquisition of Capital Assets (June 2006). 

[12] GSA Public Buildings Service, FY2011 State of the Portfolio, 
(Washington, D.C., 2011.) 

[13] GSA must first seek space in government-controlled space, 
including space controlled by the U.S. Postal Service. 41 C.F.R. §§ 
102-73.10, 102-73.20. 

[14] 40 U.S.C. § 3307. 

[15] [hyperlink, http://www.gao.gov/products/GAO-03-122] and 
[hyperlink, http://www.gao.gov/products/GAO-13-283]. 

[16] GAO. Federal Real Property: Progress Made Towards Addressing 
Problems, but Underlying Obstacles Continue to Hamper Reform, 
[hyperlink, http://www.gao.gov/products/GAO-07-349] (Washington, D.C.: 
Apr. 13, 2007.) 

[17] OMB Circular A-11, App. B. Budget authority authorizes an agency 
to enter into financial obligations that will result in immediate or 
future outlays involving federal government funds. See GAO, A Glossary 
of Terms Used in the Federal Budget Process, [hyperlink, 
http://www.gao.gov/products/GAO-05-734SP] (Washington, D.C.: Sept. 
2005). 

[18] In addition to the scoring criteria described above, to be 
considered an operating lease, all of the following criteria must be 
met: (1) ownership of the asset remains with the lessor during the 
term of the lease and is not transferred to the government at, or 
shortly after, the end of the lease period; (2) the lease does not 
contain a bargain-price purchase option. (3) the lease term does not 
exceed 75 percent of the estimated economic life of the asset; (4) the 
asset is a general purpose asset rather than being for a special 
purpose of the government and is not built to the unique specification 
of the government as lessee; and (5) there is a private-sector market 
for the asset. OMB Circular A-11. App. B. 

[19] [hyperlink, http://www.gao.gov/products/GAO-08-197]. 

[20] Presidential Memorandum--Disposing of Unneeded Federal Real 
Estate--Increasing Sale Proceeds, Cutting Operations Costs, and 
Improving Energy Efficiency, 75 Fed. Reg. 33987 (June 16, 2010). 

[21] OMB, Memorandum to the Heads of Executive Departments and 
Agencies: Promoting Efficient Spending to Support Agency Operations 
(May 11, 2012). 

[22] OMB, Management Procedures Memorandum No. 2013-02 (Mar. 14, 2013). 

[23] Approximately 45 percent of the high-value leases had terms from 
1 to 10 years. 

[24] According to GSA's data, this lease has a total of 145,653 
rentable square feet; however, according to GSA, the Army Corps of 
Engineers reduced its space to approximately 118,000 rentable square 
feet after giving GSA 120 days notice, leaving GSA with vacant space 
for which GSA must pay rent until it finds a different federal tenant 
to move into the space. At the time of our review, GSA officials said 
that GSA was building out the space in order to rent it to the U.S. 
Trustees. 

[25] According to GSA's policy, GSA must take relocation costs into 
account when considering whether to do a succeeding lease in the same 
space or a new lease in a different space. When comparing offers, GSA 
amortizes relocation costs over the full term of the lease in order to 
determine whether, after taking relocation costs into account, an 
offer in a new space would result in savings to the government over an 
offer to continue in the existing space. According to GSA officials, 
if the new space is chosen, the agency must pay for the move costs up 
front in the year they are incurred--and so must budget for them prior 
to committing for new space requirements to GSA. 

[26] Holdovers do not just occur with high-value leases. According to 
GSA data, as of November 2012, 190 of a total of 8,884 leases were in 
holdover status--about 2 percent of all leases. 

[27] GAO, Federal Buildings Fund: Improved Transparency and Long-term 
Plan Needed to Clarify Capital Funding Priorities, [hyperlink, 
http://www.gao.gov/products/GAO-12-646] (Washington, D.C.: July 12, 
2012). In this report, we identified four leading practices for using 
information to make capital investment decisions, primarily from GAO's 
Executive Guide and OMB's Capital Programming Guide. However, the 
first leading practice, a comprehensive needs assessment, pertains to 
an agency's owned portfolio and we therefore are not including it in 
our analysis of GSA's high-value leases. Also see OMB, Capital 
Programming Guide, Supplement to Office of Management and Budget 
Circular A-11, Part 7: Planning, Budgeting, and Acquisition of Capital 
Assets (June 2006) and GAO, Executive Guide: Leading Practices in 
Capital Decision-Making, [hyperlink, 
http://www.gao.gov/products/GAO/AIMD-99-32] (Washington, D.C.: 
December 1998). In our Federal Buildings Fund report, we also drew 
from leading capital investment practices identified by the National 
Research Council. (National Research Council of the National 
Academies, Predicting Outcomes from Investments in Maintenance and 
Repair for Federal Facilities (Washington, D.C.: 2011). 

[28] GAO. Leading Practices in Capital Decision-Making, [hyperlink, 
http://www.gao.gov/products/GAO/AIMD-99-32] (Washington, D.C., 
December 1998). 

[29] GSA had been performing a 30-year net present value analysis, 
which measures the multiyear cash flows in present-dollar terms, so 
the value of a dollar received today can be compared against the value 
of a dollar received in the future. Such an analysis allows managers 
to compare the cost of a multiyear lease, with payments spread over a 
number of years, with ownership, which requires up-front obligation of 
funds. 

[30] According to GSA officials, while each individual lease agreement 
has a maximum term of 20 years, at times renewal options or extensions 
can lead to the total time of occupancy related to the lease exceeding 
20 years. 

[31] To perform this scoring analysis, GSA uses established criteria 
to determine the fair market value of the asset at the inception of 
the lease and then compares this amount to annual lease payments 
multiplied by the number of years in the lease term. 

[32] GAO. Federal Real Property: Improved Data Needed to Strategically 
Manage Historic Buildings, Address Multiple Challenges, [hyperlink, 
http://www.gao.gov/products/GAO-13-35] (Washington, D.C.: Dec. 11, 
2012). 

[33] When GSA runs a competitive-bidding process for a lease that 
currently exists in a leased space, the existing landlord's offer must 
include the costs of the new lease, while any competing landlords must 
incorporate the costs of replicating any build out and other facility 
investments that will have to be replicated into the new space into 
their rental rate offer. 

[34] This lease was authorized in legislation and so was not 
accompanied by a prospectus. 

[35] One of these leases, with a net annual rent of $25.8 million, 
accounts for over half of this net annual rent. According to a GSA 
official, no prospectus was formulated for this lease when it 
commenced in the early 1990s, but GSA had briefed Congress before 
entering into this lease. The lease enabled the redevelopment of the 
property, the main Post Office near Union Station in Washington, D.C. 
The lease runs from 1992 to 2022. Moreover, according to GSA, one of 
these leases was not a prospectus-level lease because in year 16 of 
the 20 year lease, the rent is significantly reduced for 42 months. In 
computing whether the net annual rent of a lease exceeds the 
prospectus threshold, GSA computes a levelized rent over the period of 
the lease term. In this case, the reduced rent late in the lease term 
meant that the net annual rent over the 20 years did not exceed the 
prospectus threshold. 

[36] [hyperlink, http://www.gao.gov/products/GAO-12-646]. 

[37] OMB, Capital Programming Guide, Supplement to Office of 
Management and Budget Circular A-11, Part 7: Planning, Budgeting, and 
Acquisition of Capital Assets (July 2012), and GAO, Executive Guide: 
Leading Practices in Capital Decision-Making, [hyperlink, 
http://www.gao.gov/products/GAO/AIMD-99-32] (Washington, D.C.: 
December 1998). 

[38] GAO. Real Property Management Issues Facing GSA and Congress, 
[hyperlink, http://www.gao.gov/products/GAO/T-GGD-92-4] (Washington, 
D.C.: Oct. 30, 1991). 

[39] [hyperlink, http://www.gao.gov/products/GAO-12-646]. 

[40] GSA's letter also included an enclosure that contained the 
agency's technical comments. The enclosure is not reprinted in 
Appendix II. 

[41] GAO, Executive Guide: Leading Practices in Capital Decision-
Making, [hyperlink, http://www.gao.gov/products/GAO/AIMD-99-32] 
(Washington, D.C.: December 1998). 

[42] OMB, Capital Programming Guide, Supplement to Office of 
Management and Budget Circular A-11, Part 7: Planning, Budgeting, and 
Acquisition of Capital Assets (June 2006). 

[43] [hyperlink, http://www.gao.gov/products/GAO-12-646]. 

[End of section] 

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