The GSA’s Curious Houston U.S. Attorney Office Leasing Deal: Higher Costs, Double Rent

A Swamplot reader who has some familiarity with the terms of the deal has expressed surprise at the 10-year lease the federal government’s General Services Administration recently signed for 132,539 sq. ft. of office space Downtown. The arrangement appears to leave the GSA paying rent on 2 separate Houston office locations for the U.S. Attorney — for 2 years. The U.S. Attorney’s office, located in the office building at 919 Milam since 1994, will move early next year to offices on the 23rd through 27th floors of Wells Fargo Plaza at 1000 Louisiana St. — space formerly occupied by Dynegy, according to a report in Globe St.:

The GSA . . . considered more than 40 potential locations before touring seven buildings and then narrowing it down to four final buildings. Wells Fargo Plaza stood out because of its location, which is two blocks from the federal court building, along with its access to the downtown tunnel system and its 25,000-square-foot floorplates.

The GSA was represented in lease negotiations by the Houston office of Jones Lang LaSalle. Bruce Rutherford is a managing director in the office:

“The building is a short walk to the federal courts, and when it’s really hot or raining, the lawyers can use the tunnel to get there,” Rutherford says, adding that Wells Fargo Plaza is also a “straight shot” by cab if necessary.

But the reasons for the move cited in the article — which include an impending lease expiration, proximity to the federal courthouse, desire for a more efficient use of space as well as enhanced technology and security, and tunnel access — “just don’t add up” for our source, who notes that the Wells Fargo Plaza location is only one block closer to the federal court building at 515 Rusk than the Attorney’s current offices, which also have access to the underground tunnels.


Most puzzling of all is the timing of the move. Globe St.‘s Jennifer Duell Popovec notes the GSA had been looking for new space for the U.S. Attorney’s office for the last 2 years. The original lease at 919 Milam — at a gross rate of $19.03 per sq. ft. — expired in July 2009. The government agency signed a lease extension expiring in July 2013 at a significantly higher gross rate of $28.33 per sq. ft. If, as reported, the U.S. Attorney’s office moves into its new Wells Fargo building offices early next year, it will still have to pay rent at the 919 Milam location for at least 2 more years. At more than $200,000 a month, that extra rent would amount to more than $4.8 million.

Neither the rental rate nor the details of the lease the GSA negotiated with Wells Fargo Plaza’s landlord, MetLife, have been made public. But the gross asking rental rate there is more than 14 percent higher than the equivalent figure at 919 Milam ($28 net and $39.50 gross per sq. ft. at Wells Fargo, and $22 net and $34.50 gross at 919 Milam, if you want to check the math).

The announcement of the Wells Fargo lease signing comes just days after President Obama signed an order explicitly requiring federal agencies to eliminate excess real-estate spending. But a former GSA attorney says he can’t see how Obama’s memo could affect GSA leases: “The government does not have the option to say ‘we will terminate [this lease],’” Robert MacKichan, a partner at Holland & Knight in D.C., told the Washington Business Journal. “If the space is vacant, they can move other agencies in there but they are still paying rent.”

Swamplot’s source wonders why the GSA didn’t simply wait longer to sign a lease for the Houston U.S. Attorney’s office: “Given the huge blocks of vacancy that are going to be available in the CBD market, this was not the best judgment call. For example – there are 5 floors that will be available at Bank of America Center in February 2011, and with the delivery of the 972,000 SF MainPlace in February 2011 there will be plenty of available office space downtown and some Landlords may even get more aggressive on rental rates to compete.” Bank of America Center, at 700 Louisiana, is closer than either 919 Milam or Wells Fargo Plaza to the federal courthouse — it’s directly across the street.

The building at 919 Milam is currently being marketed for sale.

Photo of Wells Fargo Plaza: Flickr user Photine [license]

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