Challenge: Embarcadero Capital and Westbrook Partners, along with their local broker, engaged Colliers’ government solutions professionals to pursue the Federal Aviation Administration (FAA) as a tenant for their 777 Aviation Boulevard property. The FAA planned to relocate from the Hawthorne Federal Building and, because of structural deficiencies, needed to procure space under a very quick time frame.
General Services Administration (GSA) ran a full and open procurement to identify blocks of immediately available space that were large enough to accommodate the FAA and its requirements for secure parking, setback and security. These factors served to restrict competition but provided design challenges, especially as 777 Aviation is a multi-tenant building. The most significant restriction was the congressionally approved rent cap of $49, full service, flat over the term. GSA intended that the lessor provide turnkey tenant improvements within this rent.
Under this scenario, the Embarcadero/Westbrook team could not compete for the deal.
Strategy: In response, the Colliers team negotiated with GSA to craft an alternate lease structure, switching the procurement to an allowance-based format. The new structure allowed for the lessor to commit fewer tenant improvement funds within the rent, with GSA funding the remainder lump sum.
777 Aviation Boulevard had recently been purchased by Embarcadero/Westbrook and had been completely gutted, and the renovation plans were not yet completed. Because the FAA intended to occupy half of the building as quickly as possible, their space needs had to be synchronized with the base building design. The two tracks proceeded simultaneously throughout the lease negotiation process.
Result: A lease was completed that complied with the congressionally mandated rent cap and met all of the government’s unique design and security requirements. For the lessor, the lease structure shifted much of the risk of construction cost overruns and delay to the government. Further, the lease itself contained numerous clauses to mitigate operating cost risk that might have crept into the pro forma during design.
Specifically, we were concerned that the FAA’s efforts to improve space utilization could have densified the space to the point that the resulting demands on building systems would cause utility costs to exceed our estimates. To counter this, we worked with the lessor to add unique lease provisions to receive reimbursement for above-scope electricity usage.