Federal Real Estate
Office buildings leased to federal government agencies are backed by the credit worthiness of the U.S. government.
The U.S. General Services Administration (GSA) leases office space across the country on behalf of the Social Security Administration, FBI, Department of Agriculture, Drug Enforcement Agency and other federal agencies. Owning a building leased to federal government agencies can be attractive due to the credit worthiness of the tenant.
Additionally, many federal tenants have historically tended to renew their leases, remaining in the same building for many years. However, the typical GSA lease is not NNN in nature, but instead a “full service” lease that requires significant landlord expenditures and management. The daily responsibilities can be delegated to a good property management company, but the monthly income this type of property provides is not as predictable as that of a NNN or ground lease because the landlord is responsible for paying utilities, maintenance and other ongoing expenses that may vary each month.
Federal leases are unlike standard commercial leases and present unique risks – even more so now that the federal government is working diligently to reduce their office leasing footprint. Accordingly, these properties may not be suitable for certain investors. Because of their unique nature and risks, government leases require thorough analysis by experienced advisors.