Federal Real Property: Actions Needed to Enhance Information on and Coordination among Federal Entities with Leasing Authority
Published: 2016-07-06T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: GSA leases real property on behalf of many federal tenants, but some federal entities have statutory independent leasing authority.
GAO was asked to review federal entities with independent leasing authority. This report examines (1) what is known about which federal entities have independent leasing authority and their use of this authority; (2) how selected independent leases compare to GSA and private sector leases in terms of cost; and (3) to what extent selected entities have leasing policies and practices that align with leading government practices. GAO conducted a survey of 103 federal entities identified in previous GAO work; selected eight entities for their diversity in size and mission, and visited 37 leased office and warehouse locations; analyzed leases and lease files for the 37 locations; reviewed applicable laws, policies, and guidance; and interviewed GSA, OMB, and officials from the selected entities.
section_title: What GAO Found
paragraphs: There is no comprehensive list of federal entities with independent leasing authority. The Federal Real Property Council (FRPC), chaired by the Office of Management and Budget (OMB), was established in 2004 through executive order to coordinate and share leading practices in real property management among federal agencies covered by the Chief Financial Officers Act of 1990. The General Services Administration (GSA) was directed to create a database intended to be a comprehensive inventory of federal facilities, which resulted in the Federal Real Property Profile (FRPP). However, federal entities that are not members of the FRPC are not required to submit data to the FRPP and few do so. Of the 103 federal entities that GAO surveyed, 52 reported having independent authority to lease office and warehouse space. As of October 1, 2015, these 52 entities leased 944 domestic offices and 164 warehouses. Twenty-five of those entities are not members of the FRPC and therefore not required to submit their real property data to the FRPP despite leasing 243 offices and warehouses. As such, the FRPP's incomplete data set reduces its effectiveness as an oversight and accountability mechanism for entities with independent leasing authority.
GAO's review of the costs of 37 selected independent leases found that the rates of most were less costly or comparable to matched GSA leases. When independent leases have lower costs, it may be attributed in part to: (1) GSA's using standardized lease documents that include clauses with higher energy conservation, security, and seismic requirements, and (2) independent leases' having fewer space modifications, more periods of free rent, and private sector real-estate professionals negotiating with potential owners. Most of the independent leases were also less costly or comparable to matched private sector leases, particularly in the National Capital Region.
GAO reviewed the extent to which eight selected federal entities had policies that incorporated leading government leasing practices and found that six had policies that generally conformed to these practices. However, none of the lease files contained evidence that the practices were consistently followed. For example, 88 percent of the entities' lease files lacked evidence of ensuring best value by documenting advertisements to seek bids to fill their space needs, and 77 percent lacked evidence that entities effectively planned ahead by documenting the factors they used to evaluate lease offers. In addition, the average of all leases we analyzed for space-use more than doubled GSA's recommended target of 150 rentable square feet per employee for office space. It may help federal entities conform to leading practices and meet utilization targets for the space they lease if they can benefit from the coordination and leading real-property management practices shared at the FRPC.
section_title: What GAO Recommends
paragraphs: GAO recommends that OMB should establish efficient methods to: include data from non-FRPC members to the FRPP and increase collaboration between FRPC and non-FRPC entities. OMB concurred with both recommendations.

section_title: Letter
paragraphs: The federal government’s real property portfolio of over 275,000 buildings  held or leased by civilian and defense agencies is vast and diverse. GAO  has identified federal real-property management as a high-risk area due  in part to an overreliance on leasing from the private sector in cases  where ownership would be less expensive in the long run. As the federal  government’s principal civilian landlord, the General Services  Administration (GSA) leases real property on behalf of many federal  tenants. In fiscal year 2014, GSA leased 6,859 office and warehouse  spaces from the private sector (approximately 187.6-million rentable  square feet). However, independent leasing authority can be provided to  federal entities either through their enabling legislation or through an  appropriations act. As such, the basis for such authority is unique to the  federal entity. Generally, without such authority, federal entities rely on  GSA for their space needs. While GSA tracks and reports on its tenants’  real property holdings, less is known about the holdings of federal entities  that independently lease real property.
You asked us to review federal entities’ use of independent leasing  authority. This report examines: (1) what is known about which federal  entities have independent leasing authority and their use of this authority  to lease office and warehouse space; (2) how selected independent  leases compare to GSA and private sector leases in terms of cost; and  (3) to what extent selected federal entities with independent leasing  authority have leasing policies and practices that align with leading  government leasing practices.
To determine what is known about which federal entities have  independent leasing authority and use this authority to lease office and  warehouse space, we administered a survey to 103 civilian federal  entities. Our survey universe included all federal entities identified in a  prior GAO report on federally created entities such as executive  departments, other executive branch entities, government corporations,  and other federally established organizations in the executive branch that  received an average of over $20 million in annual appropriations from  fiscal years 2005 through 2008. The survey’s responses indicate which  federal entities report having independent leasing authority and the  statute which provided them the authority. For the entities using their  authority, additional questions asked how much office and warehouse  space they leased and the annual rental cost, as of October 1, 2015. We  achieved a 100 percent response rate to our survey.
To assess how selected independent leases compare with GSA and  private sector lease costs, we contracted with a real-estate consulting firm  to perform analyses of lease costs. With the consulting firm, we collected  location, cost, and size information for 43 leases, commencing from  calendar years 2001 through 2015, from eight selected federal entities,  with offices and warehouses located in four different U.S. metropolitan  regions: Atlanta, Georgia; Los Angeles, California; Miami, Florida; and  Washington, D.C. We selected these four metropolitan regions because  of the availability of independently leased office and warehouse spaces.  The eight civilian federal entities were the Federal Aviation Administration  (FAA) within the Department of Transportation, the Federal Deposit  Insurance Corporation (FDIC), the National Aeronautics and Space  Administration (NASA), the National Credit Union Association (NCUA),  the National Oceanic and Atmospheric Administration (NOAA) within the  Department of Commerce, the Pension Benefit Guaranty Corporation  (PBGC), the U.S. Coast Guard (USCG) within the Department of  Homeland Security, and the U.S. Patent and Trademark Office (USPTO)  within the Department of Commerce. We used information on these  selected independent leases, such as location, initial year, size, and other  cost-affecting factors, to match the leases to similar GSA and private  sector leases during this time period. For the GSA matches, we assessed  how the leases’ net present value per square foot compared with one  another, while for the private sector matches we assessed how the  leases’ first years’ rents compared with one another. While our selection  of 43 leases from eight federal entities is non-generalizable to the  universe of all independent leases, this selection provides examples of  how independent leases compare with GSA and private sector leases.  When an independent lease’s net present value was within 10 percent  above or 10 percent below its matched GSA or private sector lease, we  considered the two leases comparable in rate. We allowed this range to  account for variations caused by the specific circumstances and unique  features of each lease transaction. Otherwise, we considered an  independent lease beyond the 10 percent comparable range to be either  more costly or less costly than its matched lease.
To evaluate the extent that selected entities’ leasing policies and  practices aligned with leading government practices for leasing federal  real property, we identified a broad set of applicable federal lease  acquisition leading practices from a variety of federal sources including  the General Services Acquisition Regulation, the GSA’s Leasing Desk  Guide, the Federal Management Regulation, Office of Management and  Budget’s (OMB) Circular A-11, and prior GAO reports. To determine  the extent that our eight selected entities’ policies aligned with our list of  leading practices, we reviewed the real property policies provided to us by  each entity. To determine the extent that the entities’ leasing practices  aligned with leading government practices, we reviewed all  documentation in individual lease files provided by the entities for  selected 30 leases. In reviewing the lease files, we evaluated whether  there was documentary evidence that the leading practices were used. To  determine how these selected entities’ utilization of office spaces  compared with the GSA’s recommended target of 150 rentable square  feet per employee, we determined the space utilization rate for each  leased office space by collecting data on the number of employees  working at each leased office space. We divided the total rentable square  footage of each leased office by the number of employees working at the  office. We then compared these rates with the GSA’s recommended  target. We also interviewed relevant officials from the GSA, OMB, and the  Small Agency Council. For more information on our scope and  methodology, see appendix I.
We conducted this performance audit from June 2015 to July 2016 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.
subsections: section_title: Background
paragraphs: The federal government’s civilian real-property holdings include  thousands of leased office buildings and warehouses across the country  that cost billions of dollars annually to rent, operate, and maintain. As the  federal government’s principal landlord, GSA acquires, manages, and  disposes of real property on behalf of many civilian federal tenants. In this  role, GSA is responsible for executing, renewing, and terminating  contracts for leased properties. As of fiscal year 2014, GSA leased 6,444  office and 415 warehouse spaces (totaling 187.6-million rentable square  feet) from the private sector. However, there are some federal entities  that have independent statutory leasing authority, which refers to the  authority to lease space independently of GSA. Congress provides this  authority in law through a federal entity’s enabling legislation or through  annual appropriations acts. Figure 1 illustrates examples of the types of  spaces that federal entities lease directly from private owners.
Within the executive branch, the OMB and GSA provide leadership for the  management of federal real property. As the chief management office for  the executive branch, OMB is responsible for oversight of how agencies  devise, implement, manage, and evaluate programs and policies. For real  property management, OMB develops and provides direction to executive  branch agencies and is responsible for reviewing their progress. GSA has  two key leadership responsibilities related to real property management  for the federal government. First, GSA’s Public Buildings Service  functions as the federal government’s landlord, as described above.  Second, GSA’s Office of Government-wide Policy is tasked, among other  things, to identify, evaluate, and promote best practices to improve the  efficiency of management processes.
To promote the efficient and economical use of federal government real  property, in 2004 the President issued Executive Order 13327  establishing the Federal Real Property Council (FRPC) composed of  senior management officials from specified executive branch departments  and agencies covered by the Chief Financial Officers Act of 1990 (CFO  Act), including GSA, and chaired by OMB. The executive order  established FRPC with the goals of developing guidance, facilitating the  implementation of agencies’ asset-management plans, and serving as a  clearinghouse for leading practices.
The executive order also directed GSA, in consultation with the FRPC, to  establish and maintain a single, comprehensive database describing the  nature, use, and extent of all real property under the custody and control  of executive branch agencies. To meet this directive, GSA’s Office of  Government-wide Policy established the Federal Real Property Profile  (FRPP) to be a government-wide real property inventory database. It also  provided guidance to the FRPC member agencies about how to annually  report data on real property under their custody and control for inclusion  in the FRPP. Since the formation of the FRPP, only the FRPC member  agencies have been required to annually submit their real property  information to the database. According to GSA officials and OMB staff,  other unspecified federal entities may voluntarily submit data to the  FRPP.
In recent years, OMB has also undertaken several initiatives and issued  guidance to federal entities to improve federal real-property management,  specifically targeting offices and warehouses. In May 2012, OMB issued a  memorandum directing FRPC member agencies not to increase the size  of their civilian real-estate inventory, stating that any increases in an  agency’s total square footage of civilian real property must be offset  through consolidation, co-location, or disposal of space from the inventory  of that agency. In March 2013, OMB issued another memorandum  establishing implementation procedures for this policy, called Freeze the  Footprint. 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 FRPP baseline. Most recently, in March  2015, OMB issued its National Strategy for the Efficient Use of Real  Property (National Strategy). The National Strategy employs a three-step  policy framework to improve the cost effectiveness and efficiency of the  federal real property portfolio: (1) freeze growth in the portfolio; (2)  measure the cost and utilization of real property assets to provide  performance information and support more efficient use; and (3) reduce  the size of the portfolio through asset consolidation, co-location, and  disposal. To assist with the third step, OMB issued the Reduce the  Footprint policy that requires agencies to develop a Real Property  Efficiency Plan, which among other things, describes an agency’s overall  approach to managing real property and establishes reduction targets for  office and warehouse space, disposal of owned buildings, and the  adoption of design standards to optimize owned and leased domestic  office space usage. Only FRPC members are required to participate in  these government-wide real property reform efforts.
As a result of these efforts, we acknowledged in the February 2015  update to our High-Risk Series that the federal government has  demonstrated a high level of leadership commitment to improving real- property data to support decision making, and has made some progress  in increasing its capacity to improve data reliability. In our previous  assessment of the FRPP, we found that FRPP’s data can be used in a  general sense to track assets to provide an overall perspective on FRPC  members’ real property portfolios. However, we raised concerns about  the quality of the FRPP data specifically for some of the key variables,  including utilization, condition, and annual operating costs. As such, we  recommended that GSA develop and implement a plan to improve the  FRPP, so that the data collected are sufficiently complete, accurate, and  consistent. Most recently, we found that certain key FRPP data elements,  such as utilization and status, continue to be inconsistently collected and  reported by agencies. We recommended that GSA make transparent  through its FRPP documents how its mission to provide space to federal  agencies affects the reporting of the utilization and status data elements  in the FRPP. GSA has taken steps to improve the reliability of FRPP  data, but those efforts are ongoing.
section_title: Twenty-five Federal Entities That Reported Having Independent Leasing Authority Are Not Members of FRPC or Consistently Tracked in FRPP
subsections: section_title: There Is No Comprehensive List of Federal Entities with Independent Leasing Authority
paragraphs: According to GSA officials and OMB staff, neither GSA nor OMB  maintains a comprehensive list of federal government entities with  independent leasing authority and neither is required to do so. GSA  prepared a partial list of 33 federal entities with independent leasing  authority for its own purposes in 2009, but this list, according to GSA, was  not intended to be a complete list of all entities.
FRPP offers a possible way for determining which federal entities have  independent leasing authority as it has a data field that indicates if a  federal entity uses its own authority to lease real property. However, this  information is incomplete as only agencies covered by the CFO Act,  which are FRPC members, are required to annually submit their real  property information to the FRPP. Federal entities outside FRPC  membership can voluntarily submit real property data annually to FRPP,  according to GSA officials and OMB staff, but few do. We found that three  non-FRPC member entities reported to the FRPP in fiscal year 2014 that  they independently leased office and warehouse spaces. Other non- FRPC member entities have submitted data to the FRPP inconsistently.  For example, the U.S. Postal Service had previously chosen to submit  some data to FRPP, but no longer does.
The population of federal entities with independent leasing authority can  vary over time. As such, any list that is not regularly updated may not be  comprehensive because it captures a snapshot in time. Some changes  that may have taken place are, for example, federal entities that may  have acquired leasing authority since the list was initially compiled. Also,  individual leasing authority is specific to each federal entity and may  change over time. For example, legislation may be enacted to create a  new federal entity or change the nature of an existing entity’s leasing  authority—laws may place conditions on the leasing authority, such as  specifying the location, type of space, or terms under which the entities  can exercise this authority. A federal entity’s leasing authority can range  from an agency-wide, general authority to acquire real property (e.g., U.S.  Postal Service, Tennessee Valley Authority), to authority given to specific  components of a department or an agency (e.g., FAA within the  Department of Transportation), or for types of property (e.g., Commodity  Credit Corporation within the Department of Agriculture has leasing  authority for office space and storage space), or for a specific time frame.
section_title: Fifty-two Surveyed Federal Entities Reported Having Leasing Authority Independent from GSA for Office and Warehouse Space
paragraphs: To obtain more complete and reliable information on federal entities with  leasing authority, we administered a survey to 103 civilian executive  branch agencies and other federal entities that met our selection  criteria. Sixty of the entities self-identified as having independent  authority to lease real property of which 52 reported having the authority  to lease domestic office or warehouse space. Of these, 37 federal  entities reported that they are using their authority to lease 944 offices  (approximately 16.6-million rentable square feet of space and an annual  rent of $556 million) and 164 warehouses (approximately 3.3-million  rentable square feet of space and an annual rent of $39.8 million) as of  October 1, 2015. The FAA alone leases 341 offices and 70 warehouses,  which accounts for 36 percent and 43 percent of the total number of  independently leased offices and warehouses. The remaining 36 entities  use their authority to lease up to 91 offices and 36 warehouses. See table  6 and table 7 in appendix II for a full listing of the 52 federal entities that  reported having independent leasing authority to lease office and  warehouse space, legal citations for their authority, and summary  statistics about the offices and warehouses they leased.
Of the 37 federal entities that reported using their leasing authority to  lease office or warehouse space, 18 also reported using GSA to lease a  portion of their space. There are a variety of reasons why federal entities  use GSA to lease on their behalf in certain circumstances and use their  independent leasing authority in other situations. For example, NASA  officials told us NASA is legally required to use GSA to lease office and  warehouse space inside the National Capital Region, but may choose to  use its own authority elsewhere. In contrast, according to FAA officials,  the majority of FAA’s office spaces are leased independently, though they  may use GSA when FAA does not have the staff resources available to  administer the lease process or if private sector availability is limited in  certain markets. They said that obtaining a lease using independent  leasing authority can generally be completed more quickly than acquiring  space through GSA. According to FAA officials, when faced with tighter  timeframes, FAA can fulfill space needs in as little as 4 months, whereas  it can take over a year to lease through GSA.
section_title: Twenty-five Federal Entities That Reported Having Leasing Authority Are not Members of the FRPC, Creating Gaps in Data
paragraphs: In our survey, 25 federal entities that are not members of the FRPC  reported having independent authority to lease offices and warehouses.  Of those entities, 19 reported using their authority to lease domestic  offices and warehouses. Combined, these 19 non-FRPC member entities  reported that they leased 243 offices and warehouses (approximately 8.3- million rentable square feet of space and an annual rent of $303.4 million)  as of October 1, 2015. Table 1 provides a listing of the 25 federal  entities that reported having independent leasing authority and are not  members of the FRPC, along with the amounts of domestic offices and  warehouses they lease. To see more detailed information about these  entities, see table 7 in appendix II.
According to GSA’s Office of Government-wide Policy, the FRPC’s goals  are that the FRPP database:  leads to an increased level of agency accountability for asset  management; allows comparing and benchmarking across various types of real gives decision makers, including Congress, OMB, and federal entities,  accurate and reliable data needed to make asset management  decisions, including disposing of unneeded properties, in one  comprehensive database.
However, the FRPP’s incomplete data set reduces its effectiveness as an  oversight and accountability mechanism for entities with independent  leasing authority. It is not a comprehensive database of all federal real  property because, as noted previously, only the specified entities that are  covered under the CFO Act and that are also the member agencies of the  FRPC have been required to annually submit their real property data.  Other entities with independent leasing authority may voluntarily report  their data, according to GSA officials and OMB staff, but as discussed,  few do. As a result, the scope of the real property portfolios of all other  entities with independent leasing authority is largely unknown. For  example, only two of the above identified 19 entities that reported using  their authority to lease domestic offices and warehouses—the  Smithsonian Institution and the Tennessee Valley Authority—voluntarily  reported data on their independently leased offices and warehouses to  the FRPP in fiscal year 2014. As such, the remaining 17 entities’ 172  independently leased offices and warehouses (approximately 6.6-million  rentable square feet of space and an annual rent of $248.4 million) were  not accounted for in the FRPP.
The Standards for Internal Control in the Federal Government state that  management should use quality information to achieve the entity’s  objectives. To do so, management should design a process to identify the  information requirements needed to achieve its objectives. One key step  is to ensure that quality information is obtained. Quality information is  appropriate, current, complete, accurate, accessible, and provided on a  timely basis. Management should use quality information to make  informed decisions and evaluate the entity’s performance in addressing  key objectives and assessing risks. The gaps in FRPP’s data limit the  effectiveness of FRPP as a decision-making tool for policy leaders  because the data are not a complete and accurate representation of the  entirety of the federal government’s real property holdings. According to  OMB staff, the inclusion of data by federal entities not required by the  CFO Act would help the FRPP to be more of a comprehensive database,  but the staff also noted that the majority of real property is owned or  leased by CFO Act agencies. According to these staff, the federal  government has limited resources to provide technical assistance and  training to entities regarding submitting data to the FRPP, therefore,  including them would need to be accomplished in an efficient way. For  example, GSA officials and OMB staff said that if more federal entities  started submitting data to FRPP, it may require GSA to divert some  attention from its current efforts to train those entities that have not  contributed to the FRPP before.
In our review, most of the federal entities that reported having  independent leasing authority, outside the entities that are covered under  the CFO Act, are members of the Small Agency Council. The Small  Agency Council is a voluntary association of about 80 independent  federal entities with generally fewer than 6,000 employees that represents  the entities’ collective management interests. The Small Agency Council  provides these smaller federal entities a line of communication with key  decision makers, including OMB. GSA officials who manage the FRPP  said that the Small Agency Council may be able to help coordinate its  members’ involvement in the FRPP. For example, the Small Agency  Council could provide technical assistance to help its members collect  and submit their real-property data to the FRPP and facilitate the process  on behalf of GSA and OMB.
section_title: For Various Reasons, the 37 Selected Independent Lease Rates Were Often Comparable to or Lower Than Matched GSA and Private Sector Rates
paragraphs: In our sample, the lease rates of most of the 37 independent leases we  selected for review were less costly or comparable to matched GSA and  private sector rates. However, these results varied by region: selected  independent leases in the National Capital Region were generally less  costly or comparable to matched private sector lease rates, but outside  the National Capital Region, independent leases were more likely to be  above the private sector market rate. While our selection of 37 leases is  non-generalizable to the universe of all independent leases, they provide  examples of how independent leases compare with GSA and private  sector leases.
subsections: section_title: The Majority of the 37 Selected Independent Lease Rates Were at or below Matched GSA Lease Rates
paragraphs: We reviewed 37 selected independent leases across seven federal  entities. Of these leases, 14 (38 percent) had rates that were less costly  than matched GSA leases, and 11 (30 percent) had comparable rates.  The remaining 12 leases (32 percent) had rates that cost more than  matched GSA leases. Many selected independent leases were at or  below matched GSA rates in the National Capital Region as well as in our  other selected metropolitan areas. (See table 2.) Further, three of four  federal entities with more than two leases had most of their lease rates  comparable to or less costly than GSA rates. (See table 3 and fig. 2.)
Of the leases we analyzed, more independent leases were less  expensive than matched GSA leases. Based on our analysis and  interviews, we identified several possible factors that could be influencing  why some of the independent leases we analyzed were less expensive  than matched GSA leases:  Aspects unique to GSA leasing: Officials from GSA and two other  federal entities said that aspects specific to GSA’s leasing process itself  may contribute to the higher lease rates. Specifically, GSA officials stated  that GSA uses standardized lease documents that include clauses that  can be more rigorous than the leases provided by private sector  landlords. For example, GSA leases could include clauses with higher— and thus possibly more expensive—energy conservation, security, and  seismic safety requirements. The 37 selected independent leases we  reviewed include a spectrum of different lease types, including leases that  were provided by the landlord. GSA officials noted that GSA-provided  leases shift more responsibility and risk to the landlord, and these  requirements in GSA leases may increase lease rates. For example,  private sector officials told us that GSA leases allow the government  unilateral rights to substitute tenants, which increases landlord  uncertainty. This uncertainty may result in less competition and higher  rental payments. In addition, we previously found that GSA’s leasing  process is lengthy and in some cases the process can take up to 8  years. This long process can result in potential landlords dropping out of  the competition for GSA tenants, limiting competition and increasing  rates.
Tenant improvement allowances: We found tenant improvement  allowances in about 64 percent of the matched GSA leases and in only  about 43 percent of our analyzed independent leases. In a recent  report, we also found that nearly 60 percent of over 4,000 GSA leases  included tenant improvement allowances. GSA regional officials told us  that tenants typically choose to amortize at least some of these tenant  improvements over the term of the lease and ask landlords to assume the  risk—GSA does so on behalf of its tenant agencies—of customizing a  space according to specific requirements. Because landlords that lease to  the federal government often assume this responsibility and obtain the  resources required to construct, operate, and maintain real property over  the course of its lifecycle, federal entities then pay private-sector interest  rates as they pay for their improvements over the firm term of their GSA  lease. Further, those independent leases that did include tenant  improvements averaged $2.93 per square foot per year over the  amortization period, while matched GSA leases averaged $4.01 ($1.08 or  about 37 percent more), and this can contribute to more costly leases for  the GSA. In one instance, an analysis of an independent lease and its  matched GSA lease (the leases share the similar term length,  approximate size, and are in nearby locations), showed that the GSA paid  nearly $400,000 in tenant improvements, while its matched independent  lease had no tenant improvement costs. Officials from two entities,  including GSA, stated that GSA leases often include tenant improvement  allowances.
Periods of free rent: The independent leases we analyzed had periods  of free rent built into the leases more frequently than the matched GSA  leases. These periods of free rent reduce the average lease rate over the  term of the lease. According to GSA officials, landlords typically prefer to  provide periods free of rent instead of decreasing the rate charged per  square foot. These officials said landlords want to keep that rate as high  as possible for when their property is advertised to other potential  tenants. Analysis of the selected independent leases and GSA leases  showed that only two of 56 (4 percent) matched GSA leases had periods  of free rent, while 14 of 37 (38 percent) of our selected independent  leases had periods of free rent. On average, these 14 independent  leases had periods of free rent for about 9 percent of the total duration of  their tenancy. The majority of these leases’ periods of free rent were  within the range of 4 to 6 percent of the total duration of the lease. These  periods of free rent can have a large impact on total rent paid—for  example, in one independent lease, the federal entity had a period of free  rent for the first 5 months of its 10-year tenancy (4 percent of the total  lease’s duration), resulting in about $2.8 million less paid over the term of  the lease.
Real estate brokers: Officials from one federal entity with independent  leasing authority said that their use of private sector real-estate brokers  with knowledge of particular market areas may have contributed to lower  leasing rates. This entity’s officials said they often use brokers with robust  knowledge of local markets to find the best properties that also meet their  entity’s requirements. Additionally, officials from one entity said that when  there are multiple offers, their broker would use the lowest offer as  leverage to negotiate for lower rates with other potential landlords. As we  previously reported, GSA does use private sector brokers for some  leases, although the brokers are national in scope. GSA officials also  told us that these brokers are limited in the extent they can use one offer  as leverage to solicit lower offers from other bidders.
Lastly, it is important to note that for both GSA and independent leases  there are costs paid by the tenant outside of rent. For example, federal  tenants pay GSA a fee for its services related to the leased space, and  we found in January 2016 that GSA’s fee is between 5 and 7 percent. In  contrast, an entity using independent leasing authority reported that there  are administrative costs, such as paying its staff to perform various duties  associated with the lease acquisition process.
section_title: The 37 Selected Independent Lease Rates Were Comparable to Private Sector Rates, Particularly in the National Capital Region
paragraphs: Most independent leases we reviewed (27 of 37) had rates that were  comparable to or below matched private sector rates. (See fig. 3.) Across  the different regions, however, there was variation. We looked at 19  leases in the National Capital Region and found that 16 (84 percent) were  comparable to or less costly than matched private-sector lease rates.  Only 3 (16 percent) of the leases in the National Capital Region were  more costly. However, we looked at 18 leases in the other three  metropolitan areas and found that 7 (39 percent) independent leases  were more costly than matched private sector rates. (See table 4.)
Outside of the National Capital Region, private sector real-estate  professionals from a real estate firm said that a lower supply of office  space coupled with the federal government’s smaller market share may  result in higher lease rates. These professionals said that the federal  government has the largest market share in the National Capital Region  and can therefore get favorable rates in the market. These professionals  added that the region’s large supply of offices facilitates competition  between landlords, which can result in more favorable lease rates for the  federal government. GSA officials said that in other markets there  sometimes is no suitable office space available. In several cases, a  complete lack of office space required the government to instead lease  retail space. Retail space can be more expensive than office space, and  leasing retail space did result in higher rental payments in some  instances. Additionally, GSA officials stated that although the government  is highly reliable with rental payments and is often seen as a desirable  tenant, landlords outside the National Capital Region might be uneasy  and unfamiliar with working with the federal government. In a January  2016 report, we found that GSA was also able to secure leases in the  National Capital Region generally at or below market rates.
section_title: Most Selected Entities’ Leasing Policies Generally Align with Leading Practices but Lack Documentation, and Space Allocations Exceed the GSA Target
subsections: section_title: Leading Government Practices Can Help Improve Leasing Outcomes
paragraphs: We previously found that policies and procedures should establish  expectations for strategically planning acquisitions and managing the  acquisition process. Failing to address these principles can contribute to  missed opportunities to achieve savings, reduce administrative burdens,  and improve acquisition outcomes. Federal internal control standards  also state that documentation of transactions enables management to  control operations and make decisions that can help the organization run  efficiently. We reviewed the Federal Management Regulation, GSA  policies and procedures, and other applicable documents to develop a list  of leading practices that all federal entities should incorporate into their  real property leasing functions to help ensure that mission needs are met  in a cost-effective and transparent manner. (See fig. 4.) In addition to  leading practices, federal entities must follow all applicable laws related to  real property management. For example, the recording statute requires  that federal entities record the full amount of their contractual liabilities,  including for leases, against funds available at the time the contract is  executed. Previously, we found that two federal entities with  independent leasing authority—the Commodity Futures Trading  Commission and the Securities and Exchange Commission—did not fully  comply with the recording statute in the way they recorded the lease  obligations against funds available at the time the leases were  executed. Violations of the recording statute such as these can also  result in Antideficiency Act violations if lease obligations exceed available  budget authority at the time the lease is executed.
When the FRPC was created, it was envisioned to be an interagency  collaboration of senior management officials who would develop  guidance, facilitate the efforts of the members’ overall management of  federal real property, and serve as a clearinghouse for leading practices.  As noted previously, the FRPC is composed of senior management  officials from the specified agencies covered by the CFO Act, including  GSA and chaired by OMB. OMB staff told us that FRPC currently meets  on a monthly basis and provides a forum to discuss, among other things,  current real-property management policies and their implementation,  member agencies’ leading practices related to real property management,  and technical issues associated with data reporting. OMB staff said that  the FRPC has been instrumental in improving the management of federal  real property and serving as a forum for disseminating related guidance  on government-wide initiatives, such as the National Strategy for the  Efficient Use of Real Property (National Strategy) and Reduce the  Footprint. Our body of work has shown the importance and value of  interagency collaboration. Federal entities can enhance and sustain  their coordinated efforts by engaging in key practices, such as defining  and articulating a common outcome and developing mechanisms to  monitor, evaluate, and report on results. However, successful  collaboration benefits from having certain key features, such as including  all relevant participants. But there are currently limited opportunities for  non-FRPC member entities to participate in federal coordination on real  property management issues and the sharing of leading practices that  occurs in the FRPC.
According to OMB staff, increasing the membership of FRPC to include  all executive branch federal entities would essentially double the size of  the group, which would make it more difficult to manage. OMB staff said  that although their focus has been on the current FRPC member entities,  which lease and hold the majority of federal real property, any land- holding federal entity would likely benefit from the collaboration and  leading practices shared through FRPC. Currently, the guidance,  resources, and leading practices shared during FRPC meetings are not  publicly available, but may be requested by non-FRPC member entities.  As previously mentioned, non-FRPC members are also not required to  participate in the National Strategy and Reduce the Footprint initiatives;  however, OMB staff said that they would support and assist any non- FRPC member federal entity in complying with the policies, if asked. The  Small Agency Council may also be in a good position to efficiently  coordinate with smaller federal entities and share relevant leading  practices, such as those shared with FRPC member entities. An official  from the Small Agency Council said that such a coordinating role would fit  within the Council’s mission.
section_title: Most Selected Federal Entities Have Established Leasing Policies That Generally Align with Leading Government Practices
paragraphs: Six of our eight selected federal entities have policies that generally  aligned with leading government practices; two entities did not have any  documented leasing policies. The two entities without leasing policies  (NCUA and PBGC) are non-FRPC member entities. However, the six  entities with leasing policies (five of which are FRPC-member agencies  and one, FDIC, which is not) either have established their own policies,  refer to the Federal Management Regulation, or GSA policies that  include, among other things, space utilization standards, market research  requirements, preferences for full competition, and evaluating leases as  operating or capital leases. The following bullets illustrate how the policies  of these six federal entities addressed each of the leading practices.
Assess needs: All of the leasing policies we reviewed contained  some element of assessing needs including varied space-utilization  targets.
Plan ahead: All of the leasing policies we reviewed contained an  element of acquisition planning, including a requirement for  establishing clear criteria for evaluating lease offers.
Ensure best value: Some entities we reviewed had more guidance  regarding advertising than others. For example, FAA policy  referenced specific forms of advertising to consider, whereas USCG  policy listed advertising as an example of the responsibilities of the  real estate specialist, but does not specify how advertising should  occur. NASA, NOAA, and USPTO’s leasing policies did not articulate  strategies for advertising real-property leasing opportunities.
Analyze and document the budget effects: Five of six policies we  reviewed specifically mentioned evaluating leases as either operating  leases or capital leases in accordance with OMB Circular A-11. Some  budget scoring policies were more detailed. For example, while FAA  policy includes a worksheet to score its leases, FDIC’s policy did not  explicitly require that the lease’s budget-scoring evaluation be  documented.
section_title: Selected Entities Often Lacked Documentation to Support That Leading Practices Were Used
paragraphs: Although most of our selected entities had established policies consistent  with leading government practices, we found numerous instances where  individual lease files lacked evidence to support that the leading practices  were actually used. Federal internal control standards also state that  documenting transactions enables management to control operations and  make decisions that can help the organization run efficiently. To  evaluate the extent that entities’ leasing practices aligned with leading  government practices, we analyzed 30 selected lease files from 6  selected agencies. We looked for documentation of 10 sub-practices  within the 4 leading practices. (See list of sub-practices in figure 5.)  Evaluating lease file documentation across these entities with  independent leasing authority is inherently challenging because each  entity may have its own specific requirements of what should be  documented in a lease file and for what length of time. As such, we were  only able to evaluate what was provided to us, which may not fully reflect  all the steps taken by the entity to execute the lease. As a result, if there  was documented evidence that all of the sub-practices were included in  the lease file, we had reasonable assurance that the four leading  practices were implemented. However, we found the extent to which the  lease files contained documented evidence that the sub-practices were  being used varied. For example, the vast majority of our 30 selected  lease files lacked evidence of (1) advertisement of need for space (88  percent); (2) determining if the lease qualifies as an operating lease or a  capital lease (83 percent); (3) documenting factors used to evaluate offers  (77 percent); and (4) documenting the time frame for acquiring space (77  percent). However, most of our selected lease files contained some  documented evidence of specifying geographical area for needed space  (80 percent) and conducting market research (53 percent). (See fig. 5.)
The extent to which lease files documented alignment with the leading  practices varied by entity, but none of the lease files contained evidence  of full alignment with all the leading practices. For three of the six entities,  all of the lease files were in partial alignment with leading practices. Two  entities had some lease files that were in partial alignment and others that  were not in alignment with leading practices. We were unable to  determine whether the one selected USPTO lease file was in alignment  with leading practices because the entity was unable to provide required  documentation. (See table 5.) Without documented evidence in the lease  files that all of the leading practices and sub-practices were used in the  acquisition of leased space, it is difficult to determine whether the federal  entities performed the leading practices that would help them achieve the  best lease rate in a competitive and transparent manner.
section_title: Most Office Space Allocations Exceed GSA’s Recommended Target, but Entities Are Taking Steps to Reduce Space Allocations
paragraphs: All selected entities we reviewed leased more office space per employee  on average than GSA’s recommended target. According to GSA officials,  GSA recommends that federal entities allocate approximately 150  rentable square feet per employee for office space. The 30 selected  leases we reviewed averaged more than double the GSA recommended  target per employee. Figure 6 below illustrates the comparison of the  average rentable square feet per employee for our selected leases  (grouped by entity) to the GSA target.
In most of the 30 selected leases we reviewed, more office space was  leased per employee on average than the GSA recommended target of  150 rentable square feet per employee. Twenty-eight of the 30 selected  office leases analyzed for space allocation exceeded the GSA target, and  two offices met the target. Both of the offices that met GSA’s  recommended target were FAA offices.
Space allocations greater than the GSA’s recommended target do not  necessarily equate to larger offices. For example, we visited all of our  selected independently-leased offices and found many vacant office  spaces which can inflate the per-employee space allocation. Figure 7  illustrates some of the vacant spaces we observed at the selected lease  sites. NCUA officials told us that its number of employees at one of its  locations is lower than it was when the lease was signed due to a staff  reorganization. Additionally, an FDIC official told us that the sizes of the  offices at one location were likely larger than the entity’s design standards  because FDIC accepted the space as it was, without significantly  reconfiguring it.
Officials from FAA and FDIC also described actions they are taking to  increase space utilization. For example, FAA officials told us that the staff  at one of our selected office locations recently reduced from 13 to 5. In  response to the recent downsizing, FAA officials said they are planning to  reduce the office space by returning some space to the landlord. Officials  at FDIC told us they had to temporarily increase the amount of space at  one location from four floors to six floors when they brought on additional  staff a few years ago in response to the financial crisis. In March 2015,  after its staffing levels had decreased, FDIC exercised its right to  terminate the lease of four of the six floors it was leasing to account for  reduced staffing levels and currently occupies two floors of that building.
In addition, as part of the 2015 National Strategy, FRPC member entities  are required to, among other things, establish space reduction targets for  domestic office and warehouse space using FRPP data, and issue entity- specific maximums for usable square feet per workstation for leased  domestic office space. OMB staff said that FRPC has created an  effective forum for promoting more efficient space-use standards that are  key to the success of the National Strategy. However, the National  Strategy does not extend to non-FRPC members. Though not required,  non-FRPC member entities may also benefit from the leading practices  shared at the FRPC to modify their internal policies to meet utilization  targets for the space they lease.
section_title: Conclusions
paragraphs: Having complete and accurate data on the nature, use, and extent of  federal real property assets is important for making informed decisions  and identifying and addressing challenges. Currently, there is no  mechanism to track federal entities with independent leasing authority  and their real property assets, resulting in an information gap that can  lead to a lack of oversight and accountability. This is particularly true for  the 25 federal entities identified through our survey that are outside the  FRPC’s membership. FRPP was created to be a single, comprehensive  database of the federal government’s real property assets, but it cannot  achieve that without data from all federal entities, including those with  independent leasing authority. Currently, most of the 25 federal entities  that are outside the FRPC’s membership do not report their real property  data to FRPP.
FRPC members coordinate efforts and share leading practices, and OMB  staff said that the FRPC has been critical to improving real property  management since its creation through executive order in 2004. However,  FRPC’s membership has remained limited to agencies covered by the  CFO Act. We found that for the selected entities we reviewed, the FRPC  member entities were more likely to have leasing policies that aligned  with leading practices than the entities that were not FRPC members.  Increasing FRPC participation would allow all federal entities to benefit  from the collaboration and sharing of leading practices and increase the  completeness of the FRPP. However, despite the benefits to any federal  entity with a real property program, OMB staff noted that these federal  entities represent a small overall share of the federal government’s  portfolio and that there would be administrative challenges associated  with increasing the membership of the FRPC. OMB staff continued by  saying that increasing participation would need to be done efficiently so  that the FRPC and FRPP remain manageable and the effort does not  draw from other critical efforts. The Small Agency Council already  coordinates with OMB on other policy matters and may offer an efficient  way to increase involvement in FRPC and FRPP.
section_title: Recommendations for Executive Action
paragraphs: To increase the completeness of information on the federal government’s  real property holdings and improve the coordination among federal  entities that lease real property, we recommend that the Deputy Director  of the OMB—as chair of the FRPC—establish efficient methods for:  including data from non-FRPC member entities in the FRPP, and  increasing collaboration between FRPC member and non-member  entities, including sharing leading real-property management  practices.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to OMB for review and comment. OMB  concurred with our two recommendations and provided technical  comments, which we incorporated, where appropriate.
We also provided a draft of this report for review and comment to GSA  and our eight selected federal entities: FAA, FDIC, NASA, NCUA, NOAA,  PBGC, USCG, and USPTO. FAA, FDIC, NASA, NOAA, and USCG did  not have any comments on our draft report.
GSA provided technical and clarifying comments to the findings of our  draft report, which we incorporated where appropriate. GSA officials  stated that they did not have enough information to validate our  comparison of the 37 independent leases with matched GSA leases.  However, GSA officials provided a number of potential reasons that may  explain the differences in GSA and independent lease rates that we  observed. These reasons included, among others, relatively higher  energy conservation, security, and seismic safety requirements in GSA  leases. We included a discussion of these requirements and their impact  on lease rates in our report. GSA also observed that a key difference  between independent leases and GSA leases is that the GSA supplies its  own federal lease contract documents in lease transactions. GSA noted  that using standardized federal lease documents helps GSA more  accurately compare the costs of different offers, helps to satisfy budgetary  scorekeeping criteria, and ensures that various requirements of federal  law and regulation are complied with. Some federal entities with  independent leasing authority supply their own lease documents. In our  report, however, we stated that federal entities with independent leasing  authority used a spectrum of lease types, which also include leases  provided by the private sector landlord. GSA also provided an updated  recommended target for office space utilization per employee of 150  rentable square feet that is in line with government-wide initiatives, such  as the National Strategy and Reduce the Footprint, which are aimed at  improving the efficiency of federal space. We incorporated changes  throughout our report to reflect this updated target.
NCUA did not have any technical comments, but provided a letter with  additional information on NCUA’s office space requirements, which has  been included in appendix III. NCUA noted that it is revising its leasing  policies and plans on incorporating the leading government leasing  practices provided in our report, as well as leading practices regarding  space efficiency per employee, as appropriate. PBGC provided one  technical comment, which we incorporated.
USPTO provided technical comments in a letter, which has been included  in appendix IV. USPTO disagreed with our finding that the selected  USPTO lease we reviewed was not in alignment with leading practices.  We determined that a lease file was not in alignment because we were  not provided with evidence that the leading practices were being met.  USPTO opined that the selected independent lease project was an  anomaly because it was done in conjunction with a much larger GSA  space acquisition. As a result, the required documents were comingled  with GSA documents. In the letter, USPTO asserted that leading  practices were followed for the selected USPTO lease; however, USPTO  was not able to provide us with additional supporting documentation,  noting that on June 13, 2016, USPTO requested GSA to undertake a  search for relevant documentation. Without any supporting  documentation, we were unable to determine if the USPTO lease file  aligned with leading practices, and we reflected this in table 5 of the  report.
We are sending copies to the appropriate congressional committees and  the Director of the OMB. In addition, the report will be available at no  charge on GAO’s website at http://www.gao.gov.
If you or your staff have any questions about this report, 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 major contributions to this report  are listed in appendix V.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives were to determine: (1) what is known about which federal  entities have independent leasing authority and their use of this authority  to lease office and warehouse space, (2) how selected independent  leases compare to General Services Administration (GSA) and private  sector leases in terms of cost, and (3) to what extent selected federal  entities with independent leasing authority have leasing policies and  practices that align with leading government leasing practices.
To determine what is known about which federal entities have  independent leasing authority and use this authority to lease office and  warehouse space, we administered a survey to 103 civilian federal  entities. Federal entities may have independent leasing authority to lease  other types of real property besides buildings such as offices and  warehouses, for example land and other structures. There are also  different types of building classifications that these entities may have  authority to independently lease such as hospitals, laboratories, and  prisons. However, for the purposes of our review, we focused on  domestic offices and warehouses, which are the two primary types of  federal real property that GSA generally leases and would be the most  practical to try to compare across federal entities. Our survey universe  included all federal entities identified in a prior GAO report on federally  created entities such as executive departments, other executive branch  entities, government corporations, and other federally established  organizations in the executive branch that received an average of over  $20 million in annual appropriations from fiscal years 2005 through 2008.
We administered our survey and collected responses from October 2015  to April 2016, and received a response rate of 100 percent. To inform our  survey, we conducted pretests with three of our selected federal entities  with different sized leasing portfolios. The survey was a Microsoft Word  form that was sent to designated contacts at each of the federal entities.  The survey was used to first identify whether or not a federal entity  reported having independent leasing authority. If the federal entity  reported that it had independent leasing authority, it was also asked to  complete additional survey questions to identify the authorizing legislation  or appropriations act that granted it the authority to lease domestic office  and warehouse space independently. The survey also asked the federal  entity to complete additional descriptive information about the amount of  domestic office and warehouse space and associated annual rent cost as  of October 1, 2015, for the space that each entity independently leased.  The majority of the information collected through the survey has been  compiled and reported in appendix II.
To assess how independent leases compare with GSA and private sector  lease costs, we collected and analyzed lease data from selected federal  entities that reported having independent leasing authority and contracted  with a professional services real-estate firm to compare independent  leases to GSA and private sector lease rates. The scope of this review  includes information on independent leases, GSA leases, and private  sector leases commencing between calendar years 2001 through 2015.  We initially collected 43 independent leases from eight selected civilian  federal entities with offices and warehouses located in four different U.S.  metropolitan regions: Atlanta, Georgia; Los Angeles, California; Miami,  Florida; and Washington, D.C. We selected these four metropolitan  regions because of the availability of independently leased office and  warehouse spaces. The eight civilian federal entities were the Federal  Aviation Administration (FAA) within the Department of Transportation,  the Federal Deposit Insurance Corporation (FDIC), the National  Aeronautics and Space Administration (NASA), the National Credit Union  Association (NCUA), the National Oceanic and Atmospheric  Administration (NOAA) within the Department of Commerce, the Pension  Benefit Guaranty Corporation (PBGC), the U.S. Coast Guard (USCG)  within the Department of Homeland Security, and the U.S. Patent and  Trademark Office (USPTO) within the Department of Commerce. We  selected these federal entities using a variety of considerations based on  professional judgment such as the type of entity, number of properties,  square footage, and rent paid, among other factors. The selected leases  encompass all independent leases present in each region from all eight  entities except for selected FAA properties in the National Capital Region.  We omitted FAA properties at Dulles International Airport, Reagan  National Airport, and Baltimore Washington International Airport because  of the relatively large representation of FAA leases already in our  selection (15 of the 43 leases were from FAA) and resource limitations.  While our selection of 43 leases from eight federal entities is non- generalizable to the universe of all independent leases, they serve as  case studies and provide examples of how independent leases compare  with GSA and private sector leases. In addition to reviewing the leases  and additional supporting documentation from our selected federal  entities, we also interviewed knowledgeable officials at the respective  entities regarding the history and details of each individual lease.
Of these 43 independent leases collected from the eight entities, we  compared a subset of 37 leases from seven of the federal entities against  GSA and private sector leases. We excluded four leases on the basis that  they did not require the tenant to pay any rent, and excluded two  additional leases because leases of comparable building finish quality  could not be identified in their respective market. We extracted specific  cost-affecting data elements identified by the contractor from each of the  37 leases to the extent they were available within the lease documents,  as applicable. Specifically, we extracted data for the following  parameters: building type (i.e., office or warehouse), soft and/or firm lease term periods, annual rent cost, the lease’s start date, any rental abatement periods, any renewal options,  lease holdover rates, the tenant’s ability to sublet (assignment), and availability of parking spaces and their associated cost.  lease address,  rentable square footage of the leased space,  total square footage of the building,  the tenant’s share of operating expenses,  Other parameters of the leases that had implications on cost were also  included—such as free shuttle services, the tenant’s right of first refusal,  or the tenant’s ability to reduce its square footage—if present. One team  member extracted the above parameters for each of the 37 leases, and  the information was independently reviewed by another team member to  ensure for consistency and accuracy.
The contractor used GSA’s lease data from 2001 through 2016. The  contractor reviewed the data provided by GSA for inconsistences, and we  discussed the data in interviews with knowledgeable federal entity  officials to assess the appropriateness of the data’s use. We also  reviewed the contractor’s report, including its steps taken to assess the  reliability of the GSA data used and the types of analysis conducted, and  found them to be sufficiently reliable for the purpose of comparing  independent lease rates to GSA lease rates.
The contractor subsequently performed the following steps to find  comparable GSA lease matches for each of the 37 independent leases.  For each independent lease, the contractor:  filtered GSA leases that were potential matches for only those that  shared the same building class and building type (i.e., office or  warehouse);  filtered leases for those that started in the same year, or one year  before or after the starting year;  filtered the remaining GSA leases for only those leases in the same  metropolitan region, opting for leases in the same submarket, if  available; and  filtered the results so that only GSA leases within 30 to 50 percent of  the square footage of the independent lease remained. In instances in  which there were not sufficient GSA leases within that range of square  feet, the contractor appraised each potential comparable GSA lease  on an individual basis, and leveraged its staffs’ professional discretion  to determine if these potential GSA spaces could have been  considered when the independent lease was being negotiated.
This process resulted in each of the 37 selected independent leases  being matched to at least one GSA lease, with up to five matches in some  cases. The contractor then analyzed the matched leases’ rates. In order  to compare leases with different terms and sizes, the contractor  calculated the net present value of the rent per square foot of the entirety  of the GSA leases’ terms. This net present value analysis used the Office  of Management and Budget’s (OMB) nominal 10-year discount rate of 2.9  percent for calendar year 2016. In instances where there was only one  GSA lease available, the contractor compared the direct percentage  difference between the rent in costs per square foot. For instances where  there were more than one sufficiently comparable GSA lease, the  contractor used the weighted average of the GSA leases’ rents per  square foot net present value to calculate the percentage difference. For  this analysis, the contractor determined that a 10 percent variation above  or below the independent lease’s rate was the range for which the GSA  lease(s) were considered equivalent to the independent lease’s rate. We  allowed this range to account for variations caused by the specific  circumstances and unique features of each lease transaction. Otherwise,  we considered independent leases beyond the 10 percent comparable  range to be either more costly or less costly than its matched lease. Rent  for all the leases included the shell rent, the amortized tenant- improvement costs—both general and custom—and the operating costs  paid by the tenant. GSA’s fee of 5 to 7 percent that it charges to tenant  federal entities for its services related to the leased space—that we  identified in a prior report—was not included in this analysis of rental  rates.
For the comparison of independent leases to private sector leases, the  contractor collected the following data on private sector lease markets:
Private-sector lease rate data for the four markets were collected from  quarterly and annual market reports that included rental rates from  national and regional brokerage companies from 2001 through 2015.
For the operating expenses of these office buildings, the contractor  reviewed line item breakdowns of central business districts’ and  regional submarkets’ expenses in their respective markets from the  Institute of Real Estate Management’s database.
To generally assess the appropriateness of these private-sector data,  the contractor reviewed brokerage reports from several sources for  each market and conducted interviews with 35 nationwide private- sector real-estate brokers using semi-structured interviews, which  addressed topics such as typical term lengths, market practices, and  responsible parties for various expenses and service fees.
In addition, we reviewed the source of the broker market reports and  clarified analytical steps with the contractor. As a result of these steps, we  found the private sector’s lease data to be sufficiently reliable for the  purpose of comparing independent lease rates to GSA lease rates.
To perform the analysis of the performance of the independent leases  with the market data acquired, the contractor:  Identified private sector lease rates from broker reports by city and  submarket to compare with the base year independent lease rates,  and developed separate city and submarket rates by building class— that is, Class A and Class B offices—for each year of the analysis;
Used the Institute of Real Estate Management’s database to identify  the average operating expenses in each annual Class A or B  submarket’s rental rate. Used broker reports to identify tenant  improvement costs;
Matched the appropriate annual Class A or B submarket rental rate to  each of the independent leases; and
Compared the first year of the independent leases’ rent per square  foot to the same year’s submarket’s rate and calculated the  percentage differences. The contractor determined that a 10 percent  variation above or below the independent lease’s rate was the range  where the private sector’s annual Class A or Class B submarket-lease  rate was considered equivalent to the independent lease’s rate.
To evaluate the extent that selected entities’ leasing policies aligned with  leading government leasing practices we first had to establish federal  lease acquisition leading practices that could broadly apply to entities with  various leasing authorities. We developed a list of leading practices that  could be used by all federal entities to help ensure that real-property  leasing acquisitions meet mission needs in a cost-effective and  transparent manner. To develop our list of leading practices, we reviewed  leasing acquisition practices contained in the General Services  Acquisition Regulation, the GSA’s Leasing Desk Guide, the Federal  Management Regulation, OMB Circular A-11, and prior GAO reports.  We identified practices common among these sources that dealt with the  portion of the acquisition cycle that starts with identifying a need for space  through selecting the offer that meets the entity’s needs at the best value  to the entity. The four leading practices we developed were: assess  needs, plan ahead, ensure best value, and analyze and document the  budget effects of the lease. (See fig. 4.) Once the list was developed, we  shared it with GSA officials and incorporated their comments. In defining  these leading practices, we identified 10 types of documentation (which  we refer to as “sub-practices”) that may be included in a lease file to  provide reasonable assurance that the leading practice was used in  acquiring the respective leased property. (See fig. 5.) To determine the  extent that our selected entity’s policies aligned with our list of leading  practices, we reviewed the real property policies provided to us by the  entity and documented where there was evidence that leading practices  were incorporated into the policies. The evidence was aggregated in a  spreadsheet and was verified by another team member.
To determine the extent that selected lease files aligned with leading  government leasing practices, we reviewed all of the documentation  provided by the entities related to 3 warehouse leases and 27 office  leases selected in our four select metropolitan areas. In reviewing the  lease files, we documented when there was evidence of the leading  practices. We created an abstract of each of the selected leases and  noted where, if at all, evidence was contained of leading practices within  the lease files. Each of the abstracts was then reviewed by another team  member and any discrepancies were reconciled. Thus, each lease file  was reviewed by two different team members who came to the same  decision with regard to the extent that the lease file contained evidence of  the leading practices. For the purpose of this analysis, we considered a  lease file in alignment with leading practices if there was sufficient  documented evidence of the sub-practices in the lease file. We  determined the lease file to be in partial alignment if there was some  evidence in the file that the sub-practice was implemented, but either the  evidence was incomplete, insufficient, or not entirely aligned with the  leading practice. We determined the lease file not to be in alignment if  there was no evidence of the sub-practice being implemented in the  provided documentation.
To evaluate the independent leases’ space utilization rates, we collected  two pieces of information for each lease. First, we asked officials from our  selected federal entities for the number of employees assigned to the  selected offices during the first quarter of fiscal year 2016. Second, we  determined total rentable square feet per lease. We obtained this  information from each lease document that federal entities provided to us.  If the square footage was not in a lease, we asked knowledgeable federal  entity officials. We divided the number of rentable square feet per lease  by the number of employees to determine the space utilization rate. We  then compared each lease’s space utilization rate with GSA’s  recommended space utilization target of 150 rentable square feet per  employee for office space. We did not evaluate the per-employee space  utilization of warehouses in our analysis because of the fundamentally  different purpose of warehouses as compared to office space— warehouses are primarily intended for storage purposes. We also did not  evaluate the utilization of spaces where there were special arrangements  in which no rent was paid. In addition to reviewing the leases and  obtaining employee counts from our selected federal entities, we also  interviewed knowledgeable officials at their respective selected entities  regarding the purposes of each of the buildings, and visited each office or  warehouse space as part of our review. As a result, we excluded two  additional buildings from this analysis since a large percentage of the  buildings’ space was not designed for typical office use—one PBGC  office housed a large continuity-of-operations spare office space, while  another NASA office housed a large computer server facility. In total, we  reviewed 30 selected leases for this analysis. Lastly, we interviewed  relevant officials from the GSA, OMB, and the Small Agency Council.
We conducted this performance audit from June 2015 to July 2016 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.
In our survey, 52 federal entities reported having independent leasing authority to lease domestic office and warehouse spaces. Of these, 27  entities fell within the specified member agencies of the Federal Real Property Council (FRPC), which are agencies covered under the Chief  Financial Officers Act of 1990. (See table 6.) The remaining 25 were federal entities that were not FRPC member entities and also reported  having independent authority to lease domestic office and warehouse spaces. (See table 7.)
section_title: Appendix IV: Comments from the United States Patent and Trademark Office within the Department of Commerce
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Keith Cunningham, Assistant  Director; Timothy Carr; Catherine Kim; Terence Lam; Hannah Laufe;  Steve Rabinowitz; Malika Rice; Kelly Rubin; Sean Standley; Michelle  Weathers; and Crystal Wesco made key contributions to this report.