GPA Overview
GSA Buildings
GPA is a real estate investment organization that focuses on office properties in the United States.
The Federal Government is one of the largest real estate players in the United States, owning or leasing a huge portfolio of office buildings and other real estate assets across the country.
The Public Building Service (“PBS”), a major division of the General Services Administration (“GSA”), is specifically tasked with providing workplaces for over 1.4 million Federal employees, as well as with the development, leasing and disposition of Federal property.
Why Invest?
GSA-Leased Properties: Why Invest?
Advantages
Strong credit tenancy – In an unpredictable market, a GSA-leased property offers investors a strong credit tenant under a lease contract that is guaranteed by the U.S. government.- High lease renewal rate – The long-term, stable tenancy of GSA-leased properties is well-documented.
- Specialized facilities – Single-tenant GSA facilities are often purpose built and very specialized with extensive tenant improvement and security requirements. Think border patrol stations, DEA labs or courthouses to name a few. The unique functionality and associated replication costs of these buildings generally increases the likelihood of renewal and remaining in a facility well beyond the initial term.
- Higher returns – GSA-leased properties typically exhibit higher returns than similar single tenant NNN investments–sometimes as much as several hundred basis points. Experienced investors that are willing to take on the risks of real estate ownership and operations find that these facilities can provide yields of more than 500 basis points over 10 year US treasuries.
Challenges
- Early termination rights – Many GSA leases include a soft term whereby GSA has the right to terminate the lease based on a specified notice period. This presents significant underwriting challenges, especially as relates to debt placement.
- Lack of product – 87% of existing GSA leases have less than 5 years of firm term remaining. 73% have less than 3 years of firm term remaining. The budget constrained environment and other factors have in effect shortened the average lease term, thus limiting the number of long-term government-leased investment opportunities.
- Secondary/tertiary locations – GSA-leased facilities are often allocated in secondary or tertiary markets, at rents above the market norm. For investors unfamiliar with these specialized facilities, this is a source of concern as it relates to residual use. Many investors will underwrite the risk of the tenant vacating facility, which can lead to a wide variety of viewpoints on pricing from a prospective pool of buyers.
Every GSA-leased investment opportunity possesses its own, unique story and investment in this sector is certainly not without challenges. Yet, it is pretty clear that investors and developers continue to aggressively pursue single-tenant GSA-leased assets.
Strategy
Investment Strategy
GPA will target core-plus returns (10% to 14% IRRs and 8% to 10% cash on cash returns). Specifically, GPA’s program includes:
- Acquiring GSA-tenanted properties in the 6% to 7% cap rate range.
- Levering the properties with 75% LTV financing at an approximately 4.0% interest rate with 30-year amortization schedules
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Properties will feature the following attributes:
- Located in growing markets across the country to achieve geographic diversity
- Feature varied Federal government agencies
- Newly constructed or substantially renovated prior to acquisition
- Under long-term GSA direct lease, with minimum non-cancelable, initial term of 7 to 20 years
- Leases have no appropriation termination clauses
- Leases have CPI and tax adjustments designed to cover annual increases in operating expenses or are totally paid for by the tenant.
Our Strategy
Business Strategy
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1488 Deer Park Ave suite 372 North Babylon, NY 11703