Rent Pricing and Billing Briefing for the

1. Rent Pricing and Billing Briefing for the

2. Agenda • Background • Foundation • PBS Pricing Policy • Rent Pricing Principles • Rent Budgeting • Rent Pricing Overview • Components of Rent Structure • Federally-owned space • Leased space • Return On Investment (ROI) PricingI • Occupancy Agreements • Space Re-measurement Policy • Clarifications and Guidance • Checks / Balances / Standards • Rent Bill Review • Rent Appeal Process

3. Foundation • Section 210(j) of the Federal Property and Administrative Services Act of 1949, as amended (40 U.S.C. § 586) • GSA Administrator is authorized and directed to charge anyone furnished space and services at rates that approximate commercial charges for comparable space and services • GSA Federal Buildings Fund (FBF) • Public Building Amendments of 1972 (Public Law 92-313, 40U.S.C. 592, as codified by Public Law 107-217) • The EconomyAct of 1932 as amended (31 U.S.C. § 1535) • mandates all federal agencies to be fully reimbursed by their customer agency for the overhead and administrative expenses tied to services they provide to other agencies

4. PBS Pricing Policy • Federal Management Regulation (FMR) (41 C.F.R. § 102-85) • Approved by OMB; interim rule May 8, 2001 • Pricing Policy for Occupancy in GSA Space • “Rent for Federally owned space….is based on market appraisals of fully serviced rental values” • “In cases where market appraisals are not practical…., GSA may establish Rent on the basis of alternative market practices”

5. Rent Pricing Principles • Promotes rational economic decision-making and resource allocation • Promotes stability and predictability for budget planning • Promotes best value with market equivalent rent • Promotes transparency by breaking rent bill into commercial components

6. Rent Budgeting • PBS Rent Estimate Process • Projection of rent and other charges for GSA-managed properties approximately two fiscal years from the budget fiscal year • Who are the users of the information? • Our Customers: A starting point for their space budget requests • OMB: Reviews and approves the rent estimate as prescribed by law, uses it to judge agencies space budget requests • PBS: Revenue forecast begins with the Rent Estimate • Congress: Directs that funds be spent on projects based on forecasts

7. Components of Rent Structure • Shell Rent • Operating Rent • Tenant Improvement Amortization Charge • General & Custom • Security Charge • Parking and Other Charges

8. Building Shell Includes: • The structure, base building systems, finishes in common areas • Suspended acoustical tile ceiling with parabolic fluorescent lighting (open office layout) • Concrete floor • Wall board on exterior perimeter walls & interior core walls

9. Building Shell Suspended ceiling w/fluorescent light fixtures HVAC distribution for general office space Level Concrete Floor Electrical service to floor for general office space Primed gypsum wall board on exterior perimeter walls & core elements

10. Tenant Improvement Allowance • Tenant improvements take space from shell to finished condition • TI Allowance is comprised of a general and customization component

11. Tenant Improvement Allowance General Allowance: • Takes space from shell to “vanilla” office condition • Covers cost of “typical” office finishes like doors, partitioning, carpeting, electric & telephone outlets • Set nationally, adjusted annually, and indexed to local construction costs. • Currently $31.92 per USF (Washington, DC)

12. Tenant Improvement Allowance Customization Allowance: • 10% to 60% of General Allowance, based on customer agency’s Tier (Tier 1-6) • Space tailored to individual customer needs • Includes special buildout such as cabinetry, HVAC over building standard, Courtrooms, Labs, private toilets, etc.

13. Tenant Improvement Allowance • What can be included/not included in the TIA? • Can be used for any build-out expense • Per Clarification #9, cannot be used to purchase nor move personal property such as: • Artwork and Furniture • Telephones and Personal Computers • Telephone and/or computer wiring and cabling may be funded within the Tenant Improvement Allowance (TIA) • ISC countermeasures are neither general nor customization • They are capital improvements • Soft costs (design, M&I) and hard costs (labor and materials) can be applied against the TIA • Initial occupancies - Services like space planning, and construction management (CM) are provided as part of the PBS fee in leased space and as part of the shell rent in owned space

14. Tenant Improvement Allowance

15. Security • GSA • Included on PBS Rent Bill • Building Specific Amortized Capital Improvements • Real Property Security Fixtures & Features, including Blast Mitigation, Window Glazing, Progressive Collapse, Bollards, Building Access Control Systems, etc. • DHS • Included on DHS Bill • Basic and Building Specific Operating charge • Security Equipment, Contract Guards

16. Pricing in Government-Owned Space • Term of Occupancy • Base (Shell) Rent derived from Appraisal • Operating Expenses from Appraisal • Tenant Improvement Allowances • Security Charges • Joint Use Charges

17. Components for Federally Owned Space Shell Rent + Amortization of General Tenant Improvement Used + Operating Costs = Market Rent + Amortization of Customized Tenant Improvement Used + Security Services +/- Adjustments for Additional / Reduced Services + Parking + Other Charges = Agency Rent Subtotal + Joint Use (i.e. cafeteria in multi-tenant building) + Antenna = Total GSA Rent Billed to Agency

18. Pricing in Leased Space • Pass through of Lease Contract Costs • Occupancy Term • Operating Expenses • Tenant Improvement Allowances • GSA Fee • 8% • 6%, Non-Cancelable • Security Charges

19. Components for Leased Space Shell Rent + Amortization of General Tenant Improvement Used + Operating Costs + Real Estate Taxes = Market Rent + Amortization of Customized Tenant Improvement Used + Security Services +/- Adjustments for Additional / Reduced Services + Parking + Other Charges + GSA Fee (8%) = Agency Rent Subtotal + Joint Use = Total GSA Rent Billed to Agency

20. Return on Investment (ROI) Pricing • Applicability • Infeasible to appraise fair annual rental because few or no market comparables (Border Stations) • Appraisal generated rental rate does not provide a fair return on GSA’s capital investment. • Fewer than 10% of owned assets • Excluding border stations, approximately 2% of inventory. • Rent based on recovery of building cost, typically over 25 years

21. Occupancy Agreements (OA) • Captures mutual understanding between GSA and Customer • Terms of Occupancy • Occupancy Date • Financial Responsibilities • Unique Requirements • Major components • Description of Space and Services • Compendium of Clauses, including Agency Specific Clauses • Financial Summary • Signature Page

22. Space Measurement • Buildings Measured on ANSI/BOMA Standards • Rentable & Usable unit of measure • Rentable includes building support & common area • Usable = “desks & chairs” • National Policy & Tools • PBS Assignment Guide • Measurement Process Flows • CAFM Data Bases

23. Policy regarding changes in square footage • Policy is outlined in Section 2-4 (Pages 2-20 through 2-23) of the Pricing Desk Guide • Square footage cannot be changed without amending an OA to include the new square footage • Tenant Agency must be afforded time to budget for any rent increases • The increase must be included in Rent Estimate for the year the rent change becomes effective • This policy applies to both increases and decreases in rent arising from a re-measurement of space • Exception is correction of billing errors or omissions • Billing may start immediately for blocks of space occupied by an agency but have not been assigned to the agency by omission

24. Finalized Policy Clarifications • Issued in FY02 and FY03 • # 1 -Amending the OA – replaced by #19 • # 2 - STAR 7.0 Recurring RWA Feature • # 3 - Separation of Standard Clauses into Leased and Owned Sets • # 4 - Clarify Typical Tenant Improvements • # 5 - Security Charges for Parking • # 6 - Clarify Joint Use Charges • # 7 - Clarify Antenna Site Pricing – replaced by #14 • # 8 - Clarify 4% Project Management Fee • # 9 – Temporary “Office Hoteling” Leases

25. Finalized Policy Clarifications • Issued in FY04 and FY05 • # 10 - Substantial Completion / Rent Start – Standard OA Clause 2E • # 11 - Return on Investment (#11) – Section 7.2 • # 12 - Rent Appeals (#12) – Section 6.3 • # 13 - Application of the Tenant Improvement Allowances (#13) – Section 2.3.3 & 2.3.5 • # 14 - Antenna Site Pricing (#14) – Section 7.5 • # 15 - Operating Costs & Extra Services (#15) – Section 3.2.3 & 3.2.7 • # 16 - Deletion of Pricing Desk Guide Companion Document – CD 1-36 • # 17 – Rent Concessions – Section 3.2.1 • # 18 – House of Representative Pricing – Section 7.4

26. Clarification #19 – Supplementing an OA • Changes Requiring an Agency Signature • An agency expands or reduces space at an existing location • Real Estate Services are added or deleted • PBS agrees to fund additional tenant improvements that are then amortized over the remaining or an extended OA term • When it is discovered an agency is occupying space not covered by an OA (Typically identified during re-measurements or other general building review) • PBS or the tenant agency wishes to revise OA terms • Condition: Both most agree to the revised term

27. Clarification #19 – Supplementing an OA • Changes Not Requiring an Agency Signature • Five Year shell rate re-adjustment to market in owned space • Joint use amenity is added to or removed from the building • PBS undertakes new capital expenditures for new or enhanced security features or features approved by the Building Security Committee • Parking spaces are added to or subtracted from an assignment • Antennae are added to or subtracted from an assignment • Five year adjustment for Return on Investment (ROI) shell rate to recover new capitalized shell improvements funded by PBS • Border Stations are excluded

28. Clarification #19 – Supplementing an OA • Changes where an OA is not required to be issued • Annual Adjustments to: • Operating Expenses • Real Estate Taxes • Parking • Antennas • Building Specific Amortized Capital Security • maintenance and replacement of fixtures and features as well as termination of amortization schedules • Joint Use

29. Clarification #20 – Basement Storage • Has been rescinded • Will be reissued to include a definition of what qualifies as basement storage • Space that meets this definition will be priced at a reduced rate retroactive to the beginning of FY06 for existing assignments • Expected to be reissued by the end of FY06

30. Operational Guidance for Clarification #15 • Issued November 28, 2005 • Defines the intent of Clarification #15 • The operation, maintenance and additional utility costs for agency program equipment is a reimbursable expense for all hours of operation • Examples: Liebert (Air Handler) Unit, Uninterruptible Power Supply (UPS), Power Distribution Module (PDM) • Additional HVAC provided at the request of a tenant beyond a standard 10 hour day is a reimbursable cost • The standard hours of operation in leased space are whatever is standard in that leased location • Example: If lessor typically provides 12 hours of HVAC, then no additional reimbursement will be sought for the additional 2 hours of operation

31. Checks/Balances/Standards • Data Accuracy Review • Rent Pricing Review • Rent Appraisal Quality Control • Appraisals prepared by State Certified Appraisers • Spatial Data Management • Measure space according to BOMA benchmark standards • Market Gap Analysis • Compare rental rates to market

32. Rent Pricing Review • National review of rent bills and OA’s to ensure accuracy and consistency • Began in May 2006 • Focus is to two-fold • Correcting bills with financial inaccuracies • Sending final updated corrected OA to our customers • Only corrections with a net decrease or zero impact to your rent will be processed immediately • A one-time billing credit for any refunds due to you for the current fiscal year will appear on your bill

33. Rent Pricing Review • You will not be billed for errors that resulted in under-billing • We will discuss with you how to facilitate a resolution • New OA’s will be sent for each affected CBR • Signatures will not be required • Consolidated package of OA’s sent to DOI contact monthly • OA will include an explanatory ad hoc clause entitled “GSA Rent Review” • Clause will include effective date and detailed calculations • OA will be accompanied by an explanation letter

34. Checks & Balances • Rent Appeal Process • Informal Appeal • Agency requests basis of Rent charge for specific assignment • Agency review with appraiser first • You may request a copy of appraisal minus proprietary information • Formal Appeal • Three Levels of Appeal • Regional Administrator • PBS Commissioner • GSA Administrator

35. Further Information • Pricing Desk Guide Online: • http://www.gsa.gov/rentpricingpolicy • Pricing Policy Clarifications: • Click link for Pricing Policy Library • Rent on the Web • http://www.gsa.gov/rentontheweb

36. For pricing policy questions you may contact: David Baker Space Pricing Specialist Office of Real Property Asset Management Public Buildings Service U.S. General Services Administration 212-264-2025 (office) 202-595-4648 (cell)