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Backfilling a Vacant Warehouse Lease Saves More than $23 Million
The mandate is out there—reduce the federal footprint. And agencies are responding, consolidating operations and vacating space. That’s good. But when the vacated space involves a long-term lease with no termination clause, the U.S. General Services Administration must think of innovative backfilling strategies. That requires creative approaches when the vacated square footage is in an office building. And it is even more of a challenge when the space is an empty warehouse.
This was the situation in Burlington, N.J., when, in November 2013, GSA’s Federal Acquisition Service notified the Public Buildings Service division, the landlord for the civilian federal government, of its intent to vacate a million-square-foot warehouse four years into a 10-year lease. The owner was not interested in a buyout and without a sublessee GSA faced covering an annual payment of more than $7 million. After initial efforts to find federal tenants to backfill the space failed, disposal experts from the New England Region – Region 1– helped out.
Team members in the Mid-Atlantic Region – Region 3 – made plans to dramatically cut back on operating costs and, in July 2014, reported the leasehold excess. That opened the door for Region 1 Real Property Disposal and Utilization to competitively solicit offers from the private sector. Region 1 then hired the real estate service firm Newmark Grubb Knight Frank (NGKF) with a commission-only contract.
In December 2015, after fielding more than 60 interested parties’ inquiries, conducting site tours and reviewing offers, GSA successfully brokered a deal with Seldat, Inc., a third party services firm. The bottom line was a sublease for the entire warehouse for the full term of the remaining lease, which will save GSA and the American taxpayers more than $23 million. Maybe more importantly, it offered a model strategy that could be emulated in similar situations—a collaboration and clear focus that translates into success.
Because of the sublease, GSA was able to reduce the vacant leased space at the property by 100 percent!
“A cross-regional, cross-functional team led by the New England Real Property Utilization and Disposal Division and the Mid-Atlantic Region Real Estate Acquisition Division, with assistance from Central Office, legal and budget staff, customized an innovative and successful disposal solution to significantly reduce our rent and vacant space,” said PBS Regional Commissioner Glenn Rotondo.
This deal helps GSA achieve its vision of being an Economic Catalyst. It allows for productive reuse of idled vacant federal property and stimulates the opportunity for job creation.