For  example, GSA has helped agencies reduce their space needs and  consolidate space as high-value leases expire. Characteristics of High- Value Leases

As of November 2012, GSA’s 218 high-value leases represented only  about 3 percent of the total number of GSA leases, yet made up about  one-third of GSA’s leased portfolio in terms of cost and size. GSA’s Capital- Planning Approach Does Not Promote Informed Decision Making about Leasing versus Ownership

Although GSA officials stated that for most high-value leases,  constructing federally-owned space would be more cost effective over  time than continuing to lease, GSA’s capital planning approach lacks a  strategic focus that addresses its reliance on high-value leases. We  identified three leading practices that characterize sound capital  investment decision making and pertain to GSA’s high-value leased  portfolio: (1) alternatives evaluation, (2) project prioritization, and (3)  creating a long-term capital plan. In addition, we found that nine high-value  leases did not go through the prospectus process. Nevertheless, in our review, we found that 9 of our 12 case  study leases included space for long-term or mission critical space needs  for tenant agencies. According to GSA officials, in three of these cases, GSA mistakenly did  not provide a prospectus to Congress. For example, one of our case  study leases, a 146,000 square foot lease in Los Angeles that houses the  U.S. Army Corps of Engineers, has a 10-year term (from May 3, 2006  through May 2, 2016) with a net annual rent of $3.2 million, thus over the  fiscal year 2012 prospectus threshold of $2.79 million. However, GSA did  not submit a prospectus for this project prior to the beginning of the lease  term or otherwise notify or obtain approval from the congressional  authorizing committees. Without evaluating alternatives to continuing to lease its high-value  leases, GSA does not have information that it could use to prioritize  potential capital projects for those space needs currently in high-value  leases for which it would most benefit the federal government to own  rather than lease. While it has not  performed a systematic analysis to determine which space needs  represented by high-value leases would be most beneficial to move to  federal ownership—or prioritized these space needs for ownership  accordingly—in some cases, GSA has turned leased space into federally- owned space. In  2009, Congress made funds available from the Federal Buildings Fund  for the purchase. Without having taken these steps for high-value leases, GSA has  not incorporated the high-value leases that should be the highest priority  for ownership into a long-term capital plan. This lack of information on the long-term consequences  of high-value leases could inadvertently contribute to the federal  government’s overspending on agencies’ long-term space needs—even  as the federal government tries to trim costs through reducing its leased  footprint. In contrast, a strategic vision for these leases that incorporates  leading practices of capital decision making could better position the  federal government to save money over time. Increased transparency could also promote  collaboration with decision makers and better position GSA and tenant  agencies to address funding and other challenges that are impeding  progress in GSA’s efforts to reduce the federal real property footprint  through improved space utilization as leases expire. GSA lacks analysis of  the effect of these long-term leases on its portfolio and on the tenant  agency in line with capital-planning principles—and it therefore cannot  share this information with Congress, for example, by incorporating  proposals for those space needs currently housed in high-value leases for  which it would be most beneficial to transfer to an ownership solution into  the capital plan we recommended that GSA develop in 2012. Moreover, cases in which high-value leases lack a prospectus further  reduce the transparency of GSA’s full portfolio. Recommendations

To enhance transparency and allow for more informed decision making  related to the appropriate role of leasing in GSA’s real property portfolio,  we recommend that the Administrator of GSA take the following three  actions:  Include in the lease prospectus a description of the length of time that  an agency estimates it will need the space, an historical account of  how long the agency has been in the particular building it is occupying  at the time of the prospectus, and any major investments the agency  will have to make to the leased space to meet its mission. Agency Comments and Our Evaluation

We provided a draft of this report for review and comment to GSA and  OMB. Appendix I: Objectives, Scope, and Methodology

Our objectives were to (1) identify the characteristics of the General  Services Administration’s (GSA) high-value leases and what actions, if  any, GSA has taken to reduce their cost, and (2) assess the extent to  which GSA’s capital-planning approach promotes informed decision  making about leasing versus ownership.
Why GAO Did This Study

Overreliance on costly leasing is one reason that federal real property has remained on GAO's high-risk list. GAO's work has shown that building ownership often costs less than leasing, especially for long-term space needs. For leases with a net annual rent above a threshold--$2.79 million in fiscal year 2012--GSA is required to submit a prospectus, or proposal, to Congress. GAO was asked to review these high-value leases. This report (1) identifies their characteristics and what GSA has done to reduce their cost and (2) assesses the extent to which GSA's capital-planning approach supports informed leasing decisions. GAO reviewed GSA data for all 218 active high-value leases as of November 2012 and selected 12 leases for case studies based on expiration dates, locations, and tenant agencies. GAO reviewed relevant legislation and guidance, interviewed agency officials, and compared GSA actions to leading practices.

What GAO Found

The General Services Administration's (GSA) 218 high-value leases GAO reviewed represented only about 3 percent of the total number of GSA leases, yet made up about one-third of its leased portfolio in terms of cost and size. GSA has reduced the costs of its high-value leases in line with the administration's goal to reduce real property costs. GSA's efforts include helping agencies improve space utilization. However, for leases nearing expiration, GSA and tenant agencies have faced challenges in funding space renovations and moving costs. This lack of funds has contributed to delays and some cases in which GSA continues to occupy space after the lease expires.
GSA officials stated that for most high-value leases, federal ownership would be more cost effective over the long term, but GSA did not have the funding available to purchase, renovate, or construct a building. GAO found that GSA's capital-planning approach lacks transparency and a strategic focus that could support more informed decision making in this area. Specifically, GSA does not follow capital-planning practices involving alternatives evaluation, project prioritization, and long-term capital planning:
GSA's lease prospectuses do not discuss the length of time of the space need or alternative approaches to meeting it--which are key to understanding whether leasing or owning would be more cost-effective. Twenty-seven of the prospectuses (for leases expiring from 2012 through 2027) contained an analysis that showed potential savings of over $866 million if the spaces were owned rather than leased. GSA and OMB have decided the analysis is no longer necessary in light of the lack of capital funding for acquisitions and construction. GAO's case studies highlighted long-term, mission critical space needs, such as a lease for the Environmental Protection Agency in Seattle for space it has occupied for over 40 years. Another high-value lease is for the State Department's diplomatic security bureau in Virginia. State invested at least $80 million in security upgrades into a facility that GSA leased for 10 years.
Further, GAO found that nine ongoing high-value leases did not go through the prospectus process. For example, GSA mistakenly did not prepare a prospectus for a 10-year Los Angeles lease for the U.S. Army Corps of Engineers. GSA did not notify Congress of these leases, further limiting transparency.
GSA has not systematically prioritized which space needs currently in high-value leases it would be most beneficial to move to federally-owned solutions. GSA has not incorporated space needs that are the highest priority for ownership investment into a long-term capital plan.
This lack of information on the long-term consequences, including costs and risks, of high-value leases could inadvertently contribute to the federal government's overspending on long-term space needs. In contrast, a strategic vision incorporating leading practices for capital decision making could better position the government to save money over time. Increased transparency could promote collaboration with decision makers, which could help GSA address challenges and identify cost savings opportunities as leases expire.

What GAO Recommends

GSA should enhance the transparency of decision making for high-value leases by (1) including more information in the prospectus to Congress, such as the agency's prior and future need for the space, major investments needed, and an appropriate analysis of the cost of leasing versus the cost of ownership; (2) reporting to congressional committees about certain leases without a prospectus; and (3) prioritizing potential ownership solutions for current high-value leases to help create a long-term strategy for targeted ownership investments. GSA concurred with the recommendations.