Government plays hardball on SEC headquarters lease
GAO spurns landlords, keeping a contract option to buy SEC buildings — potentially at a huge profit
The federal government will keep an option to buy the buildings that house the Securities and Exchange Commission in Washington, D.C. — potentially at a huge profit — spurning a request from private landlords to change the terms.
The property owners wanted to remove a provision that allows the agency to purchase the buildings it inhabits at a predetermined price. In a decision released Feb. 8, the U.S. Government Accountability Office, which evaluates protests regarding government business opportunities, said it wouldn’t alter the terms of the bidding process.
Many government agencies rent their headquarters from private landlords, and Congressional oversight panels have concluded that high vacancy rates in Washington are creating a buyer’s market.
The SEC’s headquarters occupies three buildings next to each other, each owned by a separate limited liability company. It’s not clear from the GAO documents whether a purchase option was available in the current leases for the buildings, one of which expires in two months.
GAO submitted a request for bids for the SEC’s office space last summer, after receiving approval from Congress. Those bid requirements give the SEC the ability to purchase the buildings a fixed-price at which the SEC can buy the facilities in 15 and 25 years. The landlords challenged this requirement.
This option to buy is transferable, so if the SEC decides not to renew its lease and not to buy the buildings, it can give the right to a third-party, which according to GAO would likely be in exchange for reduced rent elsewhere.
The landlords objected to the fixed-rate purchase options and transferability. They instead requested a clause allowing for negotiations of the sale price when the lease is coming to an end.
The right for the government agency to purchase its building is a rare clause, and a potentially lucrative one for the government. GAO only found 17 examples of this in leases signed between 1992 and 2014 nationwide, not including the SEC’s earlier leases. The office concluded in 2016 that the right to buy may be beneficial to the government.
Landlords agreed to give the U.S. State Department the option to purchase its building at 2401 E St. NW in Washington when its 20-year lease expired in 2012 for $100 million. The building was appraised at $150 million in 2009, and the purchase option was exercised, according to GAO.
The SEC’s has three leases, the first of which expires this April, followed by January 2020 and February 2021, in buildings located next to Union Station in Washington.
The location is close to local subway lines as well as to commuter lines heading into Virginia and Maryland and to New York. The SEC has been the only tenant.