Redacted Sole Source Justification.pdf

SOLE SOURCE JUSTIFICATION FOR CERTAIN COMMERCIAL PRODUCTS

AND COMMERCIAL SERVICES USING SIMPLIFIED ACQUISITION

PROCEDURES

Pursuant to the requirements of the Competition in Contracting Act (CICA), the following facts and rationale justifies the basis for a noncompetitive contract.

1. I recommend that the Federal Housing Finance Agency use other than full and open competition for the acquisition of commercially available multifamily property and market data for use in two existing models integral to the Agency’s ability to act as conservator of Fannie Mae and Freddie Mac and vital to the stability of the multifamily secondary mortgage market. The two models, 1) the multifamily acquisitions’ cap model (“the cap”) and 2) the renter cost-burdened markets determination model (“the markets”) are necessary for FHFA to implement the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4501 et seq. as amended by the Housing and Economic Recovery Act of 2008 (HERA), Public Law 110-289, 122 Stat. 2654 (2008))1.

The estimated price, including any options is estimated at $1,120,000.00.

2. Nature and/or description of the action being approved.

The contract type will be firm-fixed-price (FFP) with contract line-item numbers for:

• Ten licenses to the Contractor’s data solution

• Multifamily Market (Supply and Demand) and Economic aggregated historical and forecasted time series

• Quarterly production of county and census tract level average rent data

• Property level data, performance benchmarking, and market analysis

• Market shape file availability

• Data, analysis, map, and shapefile download or secure file transfer protocol (SFTP) delivery

The name of the firm to be solicited is CoStar Realty Information, Inc. (CoStar), which is the incumbent. CoStar is the only vendor available to meet FHFA’s requirements for data as explained in Section 3 below.

3. A description of the supplies or services required to meet the agency’s needs.

1 The FHEFSSA is a federal statute passed by Congress that established the framework for financial safety and soundness, including requirements for minimum capital levels, risk-based management, and supervisory oversight of government-sponsored enterprises such as Fannie Mae and Freddie Mac. The act itself sets broad statutory mandates but leaves discretion to FHFA to establish rules, policy guidance, and/or standards to ensure safety and soundness.

https://www.costar.com/

The Office of Single Family and Multifamily Policy (OSMP), within the Division of Housing Mission and Goals (DHMG) needs to procure data to run multiple models. OSMP requires the following elements from a data provider to continue meeting its statutory mission, as mandated in the Federal Housing Enterprises Safety and Soundness Act, specifically, 12 USC 4513b2: Prudential Management and Operations Standards, Parts 6-9:

• Historical and forecasted time series available on demand for at least the following rental market elements:

o Inventory Units o Net Delivered Units (not Net Delivered Units 12 Months) o Absorption Units (not Absorption Units 12 Months) o Vacancy Rate o Market Effective Rent/Unit o Cap Rate (not Cap Rate Transaction) o Median Household Income o NOI Index o Asset Value o Population o Total Employment

• The historical time series must be available on at least a quarterly and annual basis, beginning in the 1980’s and forecasted to, at least, five years into the future.

• The forecasted time series must be available under at least the following scenarios:

o Baseline o Upside (Moderate) o Downside (Moderate) o Severe Downside

• Average rents and property count by County name and County code datasets must be produced at least quarterly.

Other offices within FHFA, including the Office of Affordable Housing and Community Investment, in DHMG, and three offices within the Division of Enterprise Regulation also need this requirement fulfilled. These offices utilize the same data for the following key functions:

• Property photo, rental income, performance benchmarking against market comparables

• Rental market analytics

• Rental market map preparation

• Market supply and demand time series (Section 3.1.1)

• Market shape file availability

• Data, analysis, map, shapefile download capabilities

2 12 USC 4513b https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title12-section4513b&num=0&edition=prelim

• Capability to prepare and deliver custom data files

4. An identification of the statutory authority permitting other than full and open competition.

41 U.S.C. 1901(e)(2), FAR 13.501(a)

5. A demonstration that the proposed Contractor’s unique qualifications or the nature of the acquisition requires use of the authority cited (for sole source acquisitions; also required for unusual and compelling urgency where more than one offer will not be solicited).

There are several factors which make CoStar data unique and necessary to effectively achieve FHFA’s statutory mandate to ensure the safety and soundness of the regulated entities through the execution of the cap and markets models.

Market Coverage

CoStar offers a unique type of market coverage, with verified data from over eight million properties, covering a wide range of markets. This level of coverage is unique to CoStar and complementary to other data sources by filling in gaps for smaller markets. The coverage of almost all markets allows FHFA to ensure its multifamily cap model produces an accurate forecast of the multifamily market. Without this level of coverage, the forecast could inaccurately estimate the size of the multifamily market, jeopardizing the stability of the multifamily market.

The Multifamily Cap is integral to the safety and soundness of the Enterprises’ multifamily business. The Multifamily Cap ensures the Enterprises limit multifamily portfolio growth to support the multifamily secondary market without crowding out private capital. The multifamily market relies on the Multifamily Cap to plan business for the next year. This extends not only to the Enterprises but to all market participants —multifamily lenders, including banks, life insurance companies, debt funds, and other capital providers.

CoStar data allows FHFA to utilize information that covers the entire market when determining integral outputs for the multifamily market. No other data source has the same level of market coverage, particularly in smaller markets, because CoStar’s data comes directly from property owners (as outlined in Section 8) nationwide.

Time Series Upside

As outlined above, the FHFA Director mandated the creation of FHFA’s own forecast for the multifamily market in 2021. Given the substantial impact of macroeconomic forces on the multifamily market, the model needs to include a baseline, downside, and upside forecast. CoStar is the only source that offers the capability for all three versions of this forecast (see Section 8).

Model Risk Management Constraints

Per the Office of the Comptroller of the Currency (OCC) Comptroller’s Handbook Version 1.0, August 2021, Safety and Soundness, Model Risk Management, Data Management, model risk management requires “rigorous assessment of data quality and relevance, and appropriate documentation…This is particularly important for external data and information (from a vendor or outside party), especially as they relate to new products, instruments, or activities.”3 The CoStar data has already been assessed and incorporated into the model to meet these model risk management standards.

Validation of a new data source would place the completion of the multifamily cap at risk, because it would require significant time and resources to integrate the data, jeopardizing OSMP’s ability to meet its statutory mission.

Data Delivery and Processing Time

The CoStar data is unique from other data sources because it comes at the county level requiring substantially less processing than other data sources would for the markets model. The markets model relies on county level data, because it is a better reflection of actual rents in smaller and rural markets. The CoStar data is currently used in conjunction with fair market rents and small area fair market rents, to determine the renter cost-burdened markets. The renter cost-burdened markets guide the Enterprises’ support to underserved markets, ensuring they are meeting their statutorily defined mission to support affordable housing.

6. A description of efforts made to ensure that offers are solicited from as many potential sources as is practicable.

Based on the previous full competition, FHFA received a vendor demonstration from the other competitor, Moody’s Analytics. The demonstration identified

3 OCC Comptroller’s Handbook. Version 1.0. August 2021. Safety and Soundness. Model Risk Management. Data Management, Page 32.

AB 2013-07: Model Risk Management Advisory Bulletin.docx AB 2022-03: Supplemental Guidance to Advisory Bulletin 2013-07 – Model Risk Management Guidance (Jan 17, 2023 Revision) Principles for model risk management — Basel III : Explained https://www.occ.treas.gov/publications-and-resources/publications/comptrollers-handbook/files/model-risk-management/pub-ch-model-risk.pdf https://www.occ.treas.gov/publications-and-resources/publications/comptrollers-handbook/files/model-risk-management/pub-ch-model-risk.pdf https://www.occ.treas.gov/publications-and-resources/publications/comptrollers-handbook/files/model-risk-management/pub-ch-model-risk.pdf https://www.fhfa.gov/advisory-bulletin/ab-2013-07 https://www.fhfa.gov/advisory-bulletin/ab-2022-03 https://www.fhfa.gov/advisory-bulletin/ab-2022-03 https://www.thebaselframework.com/blog/principles-for-model-risk-management several deficiencies in Moody’s ability to meet the requirements. Specifically, Moody’s does not produce files at the county level for the markets model, and it does not offer an upside forecast for the cap model. Moody’s inability to provide these necessary elements for FHFA to meet its statutory mission further support that CoStar is the only vendor able to provide the data FHFA needs.

7. A determination by the Contracting Officer that the anticipated cost to the Government will be fair and reasonable.

The Contracting Officer determines the anticipated price will be fair and reasonable by relying on published price lists and by entering into negotiations with CoStar. The Contracting Officer will determine the anticipated price to be fair and reasonable based on the techniques outlined in FAR 13.106-3(a)(2)(i), (ii), (iii), and (vi).

8. A description of the market research conducted and the results or a statement of the reason market research was not conducted.

Extensive market research was conducted by OSMP to determine if other data sources could meet the requirements. OSMP met with Moddy’s Analytics for a vendor demonstration (outlined in Section 6). Through internet searches, OSMP identified several other data sources and determined all have too many deficiencies to adequately meet the requirements (see Table 1).

Table 1: Market Research

Potential Data Source

Deficiencies

Geographic Coverage Data Delivery/Processing CRED IQ • Limited coverage of the multifamily market because it relies on publicly available securitization data.

• Does not deliver county level files.

CompStak • Minimal coverage outside of major markets.

• Does not deliver county level files.

Cherre • Does not deliver county level files.

Reonomy • Focused on sales/acquisitions and not existing properties.

• Does not deliver county level files.

PropertyShark • Localized to major metros.

• Does not deliver county level files.

As indicated in Table 1: Market Research, the other potential sources do not meet FHFA’s requirement to provide data at the county level for the markets model and do not provide sufficient geographic coverage for the cap model.

9. Any other facts supporting the use of other than full and open competition.

None.

10. A listing of sources, if any, that expressed, in writing, an interest in the acquisition.

11. A statement of the actions, if any, the agency may take to remove or overcome any barriers to competition before any subsequent acquisition for the supplies or services required.

FHFA does not plan to change its current models. The time required to adequately meet model risk management requirements and integrate new data preclude the Agency from making changes to the models at this time or in the foreseeable future. FHFA will continuously monitor market capabilities and if a data source becomes available which may be able to meet all of the requirements outlined above, a full and open competition will be conducted.

CERTIFICATIONS

I certify that this justification is accurate and contains complete data necessary to support the recommendation for other than full and open competition.

Date Leila Perez Gray

DHMG Senior Policy Analyst

I certify that this justification is accurate and complete to the best of the Contracting Officer’s knowledge and belief. Also, I hereby (1) determine the circumstances cited as the statutory authority apply to this action, (2) determine the anticipated cost to the government will be fair and reasonable, and (3) recommend approval for this action.

Date Jennifer Sellers

Senior Contracting Officer

I determine that this submission is legally sufficient to justify the basis for a noncompetitive contract award.

Date Carly Malamud

Senior Counsel Office of General Counsel

Senior Procurement Executive Approval

Date Kristin Salzer

Senior Procurement Executive

Contracting Activity Competition Advocate

Date Edom Aweke

Competition Advocate