Norton GSA Roundtables Result in Dramatic Reductions in Costly Holdover Leases in National Capital Region

WASHINGTON, D.C.—Congresswoman Eleanor Holmes Norton (D-DC), a senior member of the House Economic Development, Public Buildings, and Emergency Management Subcommittee, today released a report she requested from the U.S. General Services Administration (GSA) on the status of GSA holdover leases in the National Capital Region (NCR). Norton has held two roundtables to spur holdover lease reform—in 2010, when she held her first roundtable, and in April of this year. The report shows dramatic reductions in holdover leases following the 2010 roundtable and a shift to forward-planning following the April roundtable, which has allowed GSA to focus on preparing for leases set to expire before 2017.

Both roundtables focused on the costly practice where the government stays beyond the expiration of the lease, often resulting in negotiations for short-term extensions requiring the government to pay a premium short-term price instead of a lower-cost long-term lease. However, holdovers disadvantage private owners as well because owners cannot evict the government and get new tenants, or take action concerning their property. Holdover leases occur when the tenant of a property stays beyond the expiration of the lease, but continues to make lease payments. When a lease has been in holdover for several months, the GSA will negotiate a short-term extension of the lease until they can make a long-term decision.

GSA Public Buildings Commissioner for the NCR Darren Blue, who authored the report, wrote that as a result of the 2010 roundtable, "GSA has reduced holdovers by 78 percent between [fiscal year] 2012 and [fiscal year] 2014. In addition, GSA has reduced the average length of holdover in the NCR to just 4 months." The GSA report states that following the April roundtable, the GSA has found long-term solutions to bring all remaining holdover leases out of holdover status. At the April roundtable, Norton requested that the GSA report how it intends to break out of the costly holdover pattern and develop long-term plans for the 144 leases in the NCR set to expire by September 30, 2017, where the government either occupies an entire commercial office building or is a principal tenant to ensure its leases do not go into holdover. As a result, Commissioner Blue wrote in the report that GSA has committed to "plan for lease expirations further in advance, eliminate holdovers, seek longer firm lease terms, and only execute short-term extensions when the Government has identified and is implementing a long-term consolidation strategy." The GSA report also said that "GSA is working to eliminate short-term lease extensions wherever possible," and that "GSA will only execute short-term extensions to support projects that consolidate leases into federally-owned space, complete capital construction projects, reconfigure existing space to accommodate new requirements, or that result in termination of a lease." For example, in preparation for the Department of Homeland Security's (DHS) ongoing consolidation to St. Elizabeths in Ward 8, many DHS agencies have signed short-term leases until the date they are scheduled to move to the new consolidated headquarters.

In its report, GSA detailed the plans it has developed to address all 144 leases to avoid holdover. GSA will execute short-term extensions for only 11 of the 144 leases. Norton assumes that by 2017, those short-term leases will become long-term leases. The report also said that GSA plans to replace 71 of the expiring leases with long-term leases, and the majority of these leases have now gone out for competition among private owners. GSA reports that it will exercise the option to renew 17 of the 144 leases, which locks in a lower rate based on the originally agreed-to long-term lease, saving millions in taxpayers funds over the term of the renewal lease. GSA will execute succeeding leases for 20 properties, which are used when the rental terms are highly favorable to the government. Finally, rather than venture into short-term extensions, GSA will terminate the remaining 25 leases upon expiration.

The GSA reported that 19 of the 144 leases in the NCR were in holdover status as of the publication of the report. As a result of Norton's April roundtable and follow-up letter, GSA has identified long-term solutions for all 19 holdover leases by awarding replacement leases for seven locations, awarding replacement leases in four locations that are now in negotiations, terminating three leases, and reworking five long-term leases, including consolidation into existing leases or federally owned space.

"Having lost the government's renting advantage after the 2008 great recession, the report shows that GSA is making good progress in catching up," Norton said. "The reduction in the number of costly holdover leases in the National Capital Region will save millions of taxpayer dollars while stabilizing the commercial real estate market for private sector owners who do business with the federal government. The real estate market is still ripe for long-term planning and investment. The elimination of the holdover backlog and GSA's solid plans for leases expiring in 2017 will bring significant savings to the government. Proactively engaging in negotiations on leases to avoid holdovers will give GSA the advantage in seeking below-market rents or other concessions from private owners and planning for future leasing needs. At the same time, private owners will have an opportunity to negotiate market-rate rents, refinance their property, and engage in long-term planning."