For two years, the new nine-story office building stayed almost vacant, a huge white elephant wedged between a sand and gravel company, a power plant and the Anacostia River on Buzzard Point, while the federal government paid $2.5 million a year in rent.
The General Services Administration, which provides offices and supplies for federal agencies, had leased the Buzzard Point building from local doctor-developer Laszle N. Tauber for use as the headquarters of the Securities and Exchange Commission.
But the SEC and eight other federal agencies all refused to move to the building because of its remote location, its industrial neighbors and shortcomings they found on its construction. GSA decided it would be unable to persuade even its own employes to move there.
Jay Solomon, a former Tennessee shoping center developer who became administrator of GSA last year, said he never would have leased the Buzzard Point building.
"You can walk in the lobby and the ceiling is on your head," he said. "[And] there is no landscaping."
Eventually, the Washington field office of the FBI, which had been cramped in an old, leaky building downtown, agreed to move into the Buzzard Point building last year. It still will not be fully occupied until later this year when the Defense Department's Military District of Washington finishes moving there. And many of the D.D. employes are outspokenly unhappy, about the move.
Why did GSA commit the government to paying $2.5 million a year for a 380,000-square-foot building that almost no agency of government likes or wants to work in?
The decision to rent the building from a syndicate of investors headed by Dr. Tauber, an Alexandria physician who is one of the federal government's biggest landlords, was made by then-GSA administrator Arthur F. Sampson, who left that job in 1975.
While the lease for the Buzzard Point building was being negotiated, a friend of Sampson, New Jersey lawyer Arthur S. Lowell, intervened with Sampson on Tauber's behalf. Lowell, who had been hired by Tauber to represent him in his effort to obtain a GSA lease of the then proposed Buzzard Point building, later was allowed by Tauber to buy an interest in the building at a lower price than that paid by most of the other investors.
Lowell and Sampson have since said that there was at least one conversation between them about the pending Buzzard Point lease, in which Lowell complained that the GSA officials negotiating the lease were not treating him properly, because they allegedly were asking Dr. Tauber for documents they had not requested from his competitors.
"All I did was scare the s- out of them" (the GSA leasing officials), Lowell said recently of his appeal to the administrator. Sampson, who left GSA in 1975 to work for a concrete manufacturer, was hired recently by Lowell and Tauber to run a new coal reclamation venture they have begun together. In explaining his decision to hire Sampson at Lowell's request. Tauber said Sampson "stood up for me on Buzzard Point. Am I going to turn him down now?"
Lowell represents other firms before GSA, including Art Metal Inc., a Newark, N.J., metal office furniture manufacturer. GSA has continued to buy most of its steel desks, filling cabinets, and bookcases from Art Metal despite the complaints from agencies that use them that the desk tops peel off, the finishes rust, the drawers do not open, and the locks jam.
GSA investigators have seized the agency's files on Art Metal as part of a broad investigation of possible abuses within GSA. Agency officials also have been reviewing possible methods of keeping GSA contracts from Art Metal.
At the time the lease at the Buzzard Point building was announced, GSA officials said its reasonable and provided the government with a "very good deal."
But a Washington Post investigation has determined, based on the building's apparent value, that the rent CSA is paying Dr. Tauber and his partners is more than the highest amount it is legally permitted to pay. The Economy Act of 1932 limits annual government rental payments after deducting costs of utilities and cleaning services, to 15 per cent of the fair market value of the property being leased.
In justifying $2.5 million annual rental of the Buzzard Point building, GSA states in its files that the building was valued by its appraisers at $14.9 million. The building would have to be worth at least $12.7 million in order to satisfy leasing requirements under the Economy Act.
However, in 1977 U.S. income tax returns covering income from the building, Dr. Tauber and his partners listed the cost of the building which was completed in 1976, at $11.2 million.
American Federal Savings and Loan Association, which provided the permanent financing on the building, appraised it at $10.4 million, and the building is currently assessed at a fair market value of $10.4 million. Tauber's own representatives, under penalty of perjury, listed the value of the property in papers filed with the D.C. assessor and D.C. building permits office at an even lower figure.
According to Charles T. Walthall, who is in charge of GSA appraisals in the Washington area, "There was nothing fraudulent or corrupt about the [appraisal]. "As far as I know, it was above board."
How GSA came to lease the Buzzard Point building provides insight into its leasing program, which costs $400 million a year and provides nearly 40 per cent of the office space GSA makes available for government agencies. In the Washington area, GSA owns only 157 buildings while renting space in 321 buildings from landlords like Tauber.
GSA and Congress have long debated whether it is cheaper to rent or build government buildings. GSA argues that its cost comparisons generally show it is cheaper to rent, in part because of the lengthy delays that typically accompany federal construction and add to costs.
In addition, federal tastes in architecture run to heavy construction, expensive materials such as marble, and lobbies and corridors that are larger and higher than those found in most private office building.
On the other hand, government leases tend to become self-perpetuating arrangements that guarantee a steady source of profit for private developers. Congress has decreed that federal construction is preferable and periodically chastises GSA for relying too heavily on leasing.
Federally leased space has risen 97 per cent since 1967, while federally-owned space has declined.
In deciding to lease a large building like the one at Buzzard Point, GSA first receives a request from an agency for more space, then seek approval from the Senate and House Public Works committees to lease rather than build, and finally obtains offer of space from private landlords.
GSA is required by law to obtain such offers in the form of sealed bids. But, as in many of its contract awards, GSA takes advantage of one of the 17 exceptions in the law to permit it to "negotiate" prices with developers.
Under this method, which GSA maintains is necessary so that it can reject bids in unsuitable areas or for other reasons, the agency receives offers that are not sealed and then asks bidders to reduce their prices. GSA regulations prohibit employes from divulging the prices quoted until a lease is awarded.
In the case of the Buzzard Point building, the SEC asked in 1974 for more space to consolidate its growing operations.The SEC headquarters were then and still are one North Capitol Street at Massachusetts Avenue. The agency hoped to move to a building near its present location.
In complying with the SEC's request. GSA asked Congress for approval to lease a building, citing a complicated "present value analysis" to show that leasing would be cheaper than building. Documents supporting this analysis show GSA compared the costs of leasing with the cost of building a $57 million federal structure. This figure was more than five times what it cost Dr. Tauber to build the same amount of office space.
In response to GSA's newspaper advertisements for office space in November 1974, GSA received three offers that would allow the commission to consolidate in one building. Two of those offers - including Dr. Tauber's - covered buildings not yet built.
GSA normally will lease a proposed building if the developers can show they have the ability to go ahead with their plans. Usually, this means showing evidence of a building permit, financing, and a construction contract.
However, no developer will construct a large office building without having a good idea of who the tenants will be. This is particularly true in Washington, where only the federal government has needs large enough to fill most buildings the size of the Buzzard Point structure.
As a result, Tauber engaged in a circular kind of justification procedure. The agency required him to show that he had a building permit, financing, and a construction contract before it would award him a lease.
Yet Tauber, in a deposition arising from a civil suit over GSA's failure to fully document the possible environmental effects of leasing the building, acknowledge that his financing commitment from Riggs National Bank required that he first obtain a lease.
"At this location, if you don't have a lease . . . you cannot ask any responsible, recognized lending institution to lend you any money for a office building," he said.
Dr. Tauber maintained that he would have built the structure even if GSA had not leased it, since he could have rented the space to private tenants. Indeed, in his deposition, Dr. Tauber said construction of the building was under way several weeks before GSA awarded the lease to him.
However, GSA photographs of the site on the day the lease was awarded - June 3, 1975 - show a vacant site with a bulldozer just beginning to clear land.
"There's no way an office building on Buzzard Point could be leased to private tenants," Philip R. Carr, director of operations for the Oliver T. Carr Co., a real estate development company, said recently.
"No one would want to go down there," he said. "Even a building downtown of that size took one and one-half years to lease."
Robert L. Klugel, the D.C. assessor in charge of Dr. Tauber's appeal of the assessments on the property, said, "If he didn't have one (a GSA lease), you couldn't get anyone in the private sector to go down there at a rent that would realize a return on his investment and pay the mortgage."
Shelia Reid, a clerk-typist who works in the building for the Military District of Washington, said, "When you think of getting up in the morning and going to work, it's depressing. You look out at a cement plant, and there are no restaurants or shops unless you drive," Reid previously worked in the Military District's previous offices in the Forrestal Building at L'Enfant Plaza.
FBI Special Agent Kenneth Russell said he likes the fact that the building has ample parking space but he finds it cumbersome to use a car for interviewing people rather than taking a bus or subway that would be available if his office were downtown.
GSA originally said in its request for offers of space to house the SEC that it would consider a building's location - in relation to public transportation and the like - before choosing, the winning bid. In the end, however, GSA considered only price when selecting the winning offer.
During the bulk of the negotiations, Dr. Tauber's offer was higher than that of his nearest competitor, Sheldon E. Bernstein, who proposed to construct a building at 825 North Capitol St.
If utilities and janitorial services were not included in the rental, Dr. Tauber's offer was lowest throughout. However, the winning offer was selected to include these extras.
Dr. Tauber became the lowest bidder after he reduced his price per square foot of leased space on April 28, 1975.
Although Sampson said recently that "I was making the decisions," his name does not appear on the GSA documents covering the lease award. The final decision to lease the building was signed by Doris V. Frankenfield, deputy director of GSA's local leasing office.
She concluded that Tauber's offer was lowest. The effective annual rental rate was about 2 per cent lower than Bernstein's offer.
For his services in representing Tauber on the Buzzard Point lease, Lowell received $26,000, according to Tauber. Tauber then allowed Lowell to invest the money in the Buzzard Point venture, giving him a 1 per cent interest in the building and a 2 per cent interest in the partnership that owns the land under it. The $16,000 payment for the interest in the land was half the price paid by most other investors, Tauber said.
Tauber's company did not include Lowell's name when Tauber was asked by GSA to list all the owners of the Buzzard Point properly as part of the record of the lease in 1975, even though the partnership documents show Lowell obtained his interest in 1973.
Asked about this, Lowell said he really became a partner in the project after the lease was signed, and produced canceled checks to show when he made the investment. Therefore, he said, GSA was not misled when the lease was signed.
Lowell said that both he and a witness made a mistake when they dated the partnership papers two years before the lease was signed.
Last year, the Buzzard Point building made a profit of $523,000 on the partners' original investment of $2.1 million. (The rest of the building's cost came from bank financing and a $4 million loan advanced by the partners.) The profit amounted to about 25 per cent of the rental GSA paid for the building.
In addition, the partners were able to use the dollar amount of the building's depreciation to help lower their federal income tax payments.