Securities and Exchange Commission lease puts David Nassif Associates on edge
For Tim Jaroch, all the hard work seemed to have paid off in July of last year.
Officials from the Securities and Exchange Commission had just signed a two-page contract for 900,000 square feet in Constitution Center, the former Transportation Department headquarters that Jaroch’s firm, David Nassif Associates, had renovated for more than $200 million specifically for prospective federal tenants.
With an agreement in hand, Jaroch, a grandfather of seven, was ready to sell the 1.4 million-square-foot building in Southwest Washington — potentially for an all-time record price — and head off into the sunset.
But that was before the SEC’s lease became a major point of contention.
A report by the SEC’s inspector general found that the lease was based on assumptions that the agency would receive even more funding than was proposed for the agency by President Obama, that it would receive its full 2012 appropriations request and that it would receive all additional funding it deemed necessary to implement the new Dodd-Frank Act. The inspector general said these and other assumptions were “unfounded, egregiously flawed and irresponsible.”
Congress has since painted the agency as an example of wasteful spending and leasing hubris. Rep. Jeff Denham (R-Calif.), who chairs the subcommittee overseeing public buildings, has called the lease an example of “cavalier spending of taxpayer money,” and plans to hold a second hearing on the matter July 6. SEC Chairwoman Mary Schapiro is slated to testify.
Controversy over the lease has complicated things for David Nassif Associates, a family real estate empire founded in the 1940s. For one, Jaroch, the company’s managing general partner, says that when the SEC realized it could not fill the building and other government agencies, such as Office of the Comptroller of the Currency and the Federal Housing Finance Agency, moved to fill the void, it forced Nassif to unfairly assume additional costs related to brokerage services and building the office interiors.
“We incurred additional or unusual expenses in order to relieve the SEC of approximately 550,000 square feet of its 900,000 square feet obligation, and not surprisingly it was our position that we should be reimbursed for those demonstrable extra expenses and it’s been the SEC’s position that they don’t agree,” he said.
Jaroch said the company had discussed filing a lawsuit, though it is not his preference, and he suggested that “some of the dust is perhaps going to have to settle before some of the issues can be addressed.”
“We would like to work it out. We’re peaceful people,” he added.
Nassif still plans to sell the building and is negotiating the sale through the real estate banking firm Eastdil Secured. It is a smart time to hit the market, as fully leased, high-end Washington office buildings have attracted some staggeringly high prices recently. The Market Square offices on Pennsylvania Avenue sold for the announced price of $904 per square foot in March, an all-time D.C. record that some have suggested Constitution Center could break.
The SEC fiasco isn’t likely to affect the sales price, according to Warren Dahlstrom, president of the investment services group at Colliers International. “From an investor’s standpoint I don’t think it affects the decision at all,” Dahlstrom said. “It’s a newly renovated, fully leased building in one of the most desirable investment markets in the country. Buyers are going to be lining up around the block. They could sell this thing on eBay.”
While Jaroch’s retirement plans may be in place, many local real estate experts expect the SEC to lose its leasing authority. Jaroch said that although mistakes were obviously made at the SEC, the officials he dealt with were “people trying to do a good job for their agency and ultimately for the taxpayers of the country.”
“One thing that I feel very comfortable saying is that the people we worked with had a vision for the SEC, what they thought was great for the SEC’s future and what was best to attract great people,” he said.