The General Services Administration recently has signed leases for space in several prime downtown office buildings at rental rates that are close to the top of the market, despite assertions by the agency last summer that it would be trying to move federal workers into cheaper, government-owned suburban offices.
The most expensive pearl in the recent string of GSA leases is for the Bond Building, a historic renovated building at the intersection of 14th Street and New York Avenue NW. GSA leased the building at an annual rate of $28 a square foot for five years, with an option to renew the lease for another five years. The total cost over the expected 10-year life of the lease is $42.5 million.
Commercial real estate agents, who are, of course, pleased to have GSA leasing in downtown, said GSA is generally opting for location and convenience instead of looking for inexpensive space in outlying locations.
"There is no question we want to get out of expensive leased space like this at the Bond Building when we can," said William Sullivan, commissioner of public buildings for GSA. "There are certain functions, however, that need to be downtown, and when you have them downtown you need to pay market rates."
GSA will be consolidating the criminal division of the Department of Justice in the Bond Building, and said that it was necessary the office be near Justice's headquarters on Constitution Avenue.
GSA Administrator Terence C. Golden said in the fall that GSA would soon announce plans for moving large numbers of government workers to suburban locations. He also said at the time that he hoped to release details of a plan through which GSA would join with private developers to build offices that would be owned, rather than leased, by the government.
In the current climate of budget austerity, however, Golden's ambitious plans appear to have been tabled, commercial brokers said. Instead, Sullivan said, GSA is concentrating on purchasing existing buildings in glutted office markets, where the government hopes to be able to buy space at fire-sale rates.
GSA initiated such a program, called "Opportunity Purchases," in 1982 with $156 million, but has so far spent only $48 million on three purchases. With the recent effort to cut government outlays, there has been speculation among commercial brokers that the Opportunity Purchases program might be scuttled.
Sullivan said, however, that the Office of Management and Budget and many members of Congress agree with GSA that it is ultimately less expensive to buy a building than to lease it, and GSA expects to get approval for its request for $93 million in additional money for the program as part of the agency's 1987 budget.
Sullivan said GSA is "actively involved" in negotiations to purchase several buildings under the program and that the agency expects to use up the remaining $108 million of the original allocation by the end of this fiscal year.
"We are targeting the program to markets where we have a lot of leased space at high rates, like Washington, San Francisco, Los Angeles, Miami, Chicago and Atlanta," Sullivan said. "In each case, we analyze what it would cost to purchase the building and compare it with leasing costs in that city."
Of the three purchases made so far, one was a building at 633 Third St. NW that had stood vacant for several years during the office glut of the early 1980s. GSA bought the 95,000-square-foot building, known as Judiciary Square, for $12.6 million in 1984. The annual cost to the government of owning Judiciary Square, if spread over 10 years, is $13.26 a square foot, considerably less than the rate on the Bond Building lease.
Revitalization of the purchase program could be crucial to GSA at this point, according to critics of its continued use of leased space. While the square footage of space GSA leases is expected to decrease by 1.4 percent in fiscal 1987, GSA expects the cost to increase 5.6 percent. The increase, Sullivan said, is because 20 percent of GSA's nearly 300 leases expire this fiscal year, requiring GSA to sign new leases and shoulder rental increases.
While GSA has dragged its feet on spending the money in the Opportunity Purchases program, it has recently signed a number of leases in the Washington area, several of which are at rental rates that commercial brokers say are at the top of the market for the buildings.
GSA agreed to lease 185,000 square feet at 1301 New York Ave. NW for $24.97 a square foot for the Agriculture Department, and signed a lease for 197,000 square feet of space at 400 Army Navy Dr. in Arlington for $21.75 a square foot for the Defense Department.
At the same time, GSA finally filled an eight-story office building in Hyattsville that sat vacant for three years. GSA extended the lease on the building when a division of the Department of Health and Human Services moved out in 1983 because the rate on the building was favorable. GSA ran into problems, however, when it failed to find a government agency that would agree to move into the space. After years of wrangling, the financial management services division of the Treasury Department moved in last week.
"You would think that in this glutted market GSA could find cheaper space," said one commercial real estate broker who asked not to be named. "At these locations, however, I guess that is what they had to pay."
Sullivan admitted that the rate on the Bond Building was high for GSA but defended the lease, saying the government would make up the savings in employe productivity by putting the division of Justice near its home office.
"We don't like spending those sums of money," Sullivan said. "In some instances, though, we have to do it. It can become a real operating economy."