1.) In cases in which GSA is unable to complete a long-term leasing action  prior to a lease’s expiration, lease extensions may be used. Lease Extensions and Holdovers Are Common in GSA’s Real Property Portfolio, and Effects Vary

		Lease Extensions and Holdovers Are Common, but Incidences of Holdovers Have Declined

From fiscal years 2012 through 2014, lease holdovers and extensions  were a relatively common occurrence—3,058 out of 11,457 leases we  identified in GSA’s portfolio, or 27 percent of all active leases, went into  holdover, extension, or both over the 3-year period. Over Half of GSA’s Expiring Leases Experienced a Holdover or Extension

Of the 2,719 long-term leases set to expire in fiscal years 2012 through  2014, approximately 54 percent experienced a holdover, extension, or  both—totaling 1,455 leases. Of these 1,455 leases, more than half  experienced an extension and roughly 20 percent experienced a  holdover. (See fig. Holdovers and Extensions Have a Variety of Effects on GSA, Tenant Agencies, and Lessors

Although holdovers and extensions represent two distinct situations, they  can have similar effects on all parties involved in the federal leasing  process, according to GSA officials, tenant agency officials, and lessors  we interviewed. Uncertainty: The short-term nature of holdovers and extensions create  uncertainty for tenant agencies and lessors; such uncertainty can make it  challenging for federal tenant agencies to effectively plan and budget for  the long term. Lessors may also face challenges securing financing for  properties in holdover or extension. For example, as part of a consolidation of multiple leases into a  single space for an HHS agency, GSA’s contracting officers negotiated  short-term extensions to align the varying expiration dates of these leases  with the first day of the term of the lease for the consolidated space. GSA Is Working to Improve Its Management of Expiring Leases

GSA headquarters officials stated their commitment to reducing the  number of holdovers and extensions, and noted a variety of recent  initiatives designed to improve planning and begin the leasing process  earlier and improve communication with tenant agencies. In addition, GSA is  providing new guidance to regional offices to begin the leasing process  earlier. Additional Goals and Targets to Assess Progress in Reducing Holdovers and Extensions Would Be Beneficial

GSA has established goals, targets, and associated measures—such as  for lease planning and costs of extensions—it believes will reduce the use  of holdovers and extensions and help keep track of potential impacts. While GSA has taken these important steps, it lacks specific, current  goals and targets for assessing its actual performance in negotiating  replacement leases on time, thereby avoiding holdovers and extensions. While we understand GSA’s rationale and acknowledge the complexity  involved in setting goals and targets for the expiring lease replacement  measure, leading practices in performance management show that a  fundamental element in an organization’s efforts to manage for results is  its ability to set meaningful goals for performance and to measure  progress toward those goals as part of its strategic-planning efforts. Furthermore,  specific, relevant targets related to what happens to GSA’s leases when  they expire (i.e., whether they enter into holdover, extension, or a long- term solution) and GSA’s expected outcomes for expiring leases could  provide GSA with valuable information to support its ongoing efforts to  reduce lease holdovers and extensions, as well as allow for greater  transparency and accountability to GSA’s stakeholders, including  Congress, tenant agencies, and taxpayers. In addition, the prevalence of holdovers and extensions has  caused some private lessors to voice their hesitancy to lease space to the  federal government. GSA should ensure such goals, targets, and associated measures  fully reflect progress, by taking into account the frequency with which  holdovers and extensions occur for expiring leases within its portfolio  and GSA’s expected outcomes for expiring leases. Key contributors to this report are listed in  appendix V.

Appendix I: Objectives, Scope, and Methodology

Our objectives were to examine (1) the extent to which the General  Services Administration’s (GSA) leases went into holdover or extension  from fiscal years 2012 through 2014 and the potential effects and (2) why  some expiring leases are extended or go into holdover and what actions  GSA has taken to address this issue.
Why GAO Did This Study

Overreliance on costly leasing is one reason that federal real property has remained on GAO's High-Risk List. More than half of the leases in GSA's portfolio will expire in the next 5 years. When leases expire before a long-term solution can be finalized, GSA may pursue short-term extensions, or if GSA and a private lessor cannot come to agreement prior to expiration, the lease may go into holdover status—where a federal tenant occupies space without a contractual agreement. Extensions and holdovers may limit GSA's ability to obtain favorable contract terms. GAO was asked to review GSA's lease expirations and holdovers.
This report examines (1) the extent to which GSA's lease holdovers and extensions occur and the potential effects and (2) why some expiring leases are extended or go into holdover and what actions GSA has taken to address this issue. GAO reviewed regulations, GSA's guidance, and plans; analyzed GSA's leasing data from fiscal years 2012 through 2014; and interviewed GSA officials, federal agency officials, and lessors responsible for these leases.

What GAO Found

Lease holdovers and extensions were common in the General Services Administration's (GSA) lease portfolio from fiscal years 2012 through 2014, with a variety of effects. While leases in holdover or extension represented 27 percent of the overall portfolio, of the long-term leases set to expire over this time period, approximately 54 percent experienced a holdover or extension, or both—totaling 1,455 leases. Of these 1,455 leases, over half experienced only an extension, about 20 percent experienced only a holdover, and the remaining leases experienced both a holdover and an extension (see fig.). In addition, 1,603 leases in GSA's portfolio were in holdover or extension at the beginning of fiscal year 2012. Holdovers and extensions occurred throughout all of GSA's 11 regions and across the government, resulting in a number of potential effects. For example, while the cost impact is difficult to estimate, the short-term nature of holdovers and extensions creates uncertainty for GSA, tenant agencies, and lessors, which can make it challenging for GSA and federal tenant agencies to plan and budget for space needs and difficult for lessors to secure financing.
Holdovers and extensions occur for a variety of reasons, including challenges finalizing space requirements and the duration of the leasing process. GSA officials noted that extensions can also be used strategically, such as to align varying lease-expiration dates across multiple leases when consolidating space into a single lease. To reduce holdovers and extensions, GSA has undertaken initiatives to improve lease planning, to begin the leasing process earlier, and to improve communication with agencies. For example, GSA has provided new guidance to its regions to begin the leasing process earlier. In addition, GSA has established goals, targets, and measures—such as for lease planning and costs of extensions—it believes will reduce the need for holdovers and extensions and help track potential effects. However, GSA lacks specific, current goals and targets to assess its actual performance in avoiding holdovers and extensions. Leading practices in performance management show that a fundamental element in an organization's efforts to manage for results is its ability to set meaningful goals for performance and to measure progress toward those goals. Specific, relevant goals and targets related to what happens to GSA's leases when they expire and expected outcomes could provide GSA with valuable information to identify any actions needed to support its ongoing efforts, and allow for greater transparency and accountability to GSA's stakeholders.

What GAO Recommends

GAO recommends that GSA identify performance goals and targets for measures related to the use of holdovers and extensions for expiring leases that take into account the frequency with which holdovers and extensions occur and GSA's expected outcomes for expiring leases. GSA agreed with the recommendation.