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Meridian Group executes new lease with US Department of Veteran Affairs

Case Study

Challenge: The Meridian Group purchased 801 Eye Street NW in April 2014 for the purpose of stabilizing the property and improving the lease term. The office space in the building was occupied by three federal tenants, including the U.S. Department of Veterans Affairs (VA). The property owner engaged the Colliers government solutions team to determine the best way to ensure the long-term renewal of these tenants at the best possible terms.

The challenge was that the District of Columbia office market was very soft and General Services Administration’s (GSA) mandate was to subject all of its lease procurements to full and open competition. 801 Eye Street is in a high-rent area of Washington, D.C. and would have difficulty competing with buildings in fringe markets.

Strategy: While we accepted that the lease would be subject to competition, we thought to limit that competition by encouraging GSA to use its Automated Advanced Acquisition Program (AAAP), an online lease procurement system. We felt that the offers generated through this procurement system were not quite as aggressive as those generated through publicly advertised, multi-round bidding processes.

To convince GSA to use the AAAP system, we needed to demonstrate that Meridian’s offer would be below the prospectus threshold — an annual rent amount above which the Office of Management and Budget (OMB) and Congress must first establish maximum rent and square footage requirements. This proved difficult, given our desire to maximize rent. We formulated a rent structure that came in under the prospectus cap while still enabling Meridian to achieve its pro forma objectives.

This was a major milestone, but the more difficult task was to convince GSA that it had the authority to execute the transaction through the AAAP program. Assuming that it would require an approval from Congress, GSA had already begun the arduous process of developing the prospectus. Initially the agency was committed to commencing with a procurement only after completing that approval. That is normally a lengthy process, and we wanted to execute a transaction more quickly to inform our approach to the rest of the project leasing. If we could not successfully retain VA, then we would instead seek to reposition the building.

Result: Colliers worked closely with GSA’s senior leadership to demonstrate the offer was below the prospectus threshold and that the transaction made sense for the government from a cost-benefit perspective. GSA agreed to run the lease acquisition through the AAAP system, allowing us to execute a new lease easily a full year before we could have otherwise expected.