Challenge: When the Transportation Security Act was signed into law, it provided the Transportation Security Administration (TSA) with the tools to procure its headquarters’ lease without General Services Administration (GSA). To enter a long-term lease contract of any appreciable size, agencies need two things: leasing authority and budget appropriations. With regard to the leasing authority, TSA is granted statutory authority to acquire real estate and to bind the government to a multi-year lease while funding such obligations on a year-to-year basis.
In December 2002, TSA awarded the 545,000-square-foot lease for its headquarters to MCI WorldCom Network Services, Inc., owner of 601 and 701 South 12th Street. The buildings had since been sold twice and were ultimately acquired by Brookfield Office Properties.
With the lease set to expire in early 2014, Brookfield retained our team in 2011 to proactively engage TSA. Brookfield set forth three specific goals: retain TSA as the lessee, avoid holdover by renewing the existing lease early and maximize Brookfield’s ability to plan for the redevelopment of the property.
Strategy: We negotiated the lease via a renewal service level agreement (SLA), which contained a holdover provision ensuring that the government is motivated to complete any future procurement on time. This heavily negotiated holdover provision allows Brookfield to plan for the redevelopment/repositioning of the site in 2018.
Result: One year prior to the expiration, our team completed the five-year sole-source renewal of the TSA headquarters lease via an SLA to the existing TSA lease. In addition to achieving the three specific goals outlined by our client, we increased net operating income by approximately $3 million per year, including the last year of the existing lease. This lease renewal was the largest government lease in Arlington County and the largest lease in Brookfield’s Washington, D.C. portfolio.
In 2016, our team was retained again by Brookfield to negotiate an extension of the TSA lease. We successfully completed a three-year extension to the lease a few months thereafter. By completing the extension two years prior to the 2018 expiration, we provided Brookfield with a marketable lease term to future investors and sufficient lead time to support the development of the site.