FY2026 FAR Contractor Instructions 2023 06 16.pdf

FY 2026 Appraisal of Fair Annual Rent Contractor Instructions; Issued 3/31/2023; Page 1

Appraisal of Fair Annual Rent

Contractor Instructions

FY 2026

Real Property Valuation Division

Office of Portfolio Management and Customer Engagement Public Buildings Service

U. S. General Services Administration

March 31, 2023

FY 2026 Appraisal of Fair Annual Rent Contractor Instructions; Issued 3/31/2023; Page 2

Table of Contents

Summary of Recent Changes and Clarifications

Section 1: Introduction

What is the Fair Annual Rent (FAR) Program?

What is Fair Annual Rent (FAR)?

How does GSA establish Rents?

How does GSA use FAR Appraisal Reports?

How can I be considered as a contractor for FAR Appraisals?

What is the overall process for the appraisal component of the FAR Appraisal Program?

Is the program the same every year?

Section 2: The Appraisal Process

Scope of Work for FAR Assignments

What is the subject property or subject space I am appraising?

How does GSA suggest I begin the appraisal process?

How is the value conclusion reported?

How does GSA define building areas?

How do private sector R/U ratios relate to GSA R/U ratios?

I understand the process requires forecasting rents. What are the requirements for prospective rents?

I’ve analyzed market rents before. How is this different?

The Rent Comparison Process

Selection of Properties for Comparison

What if I’m appraising a single-tenanted or Special Purpose building?

Rent Comparison Grid Spreadsheets

Warehouse and Parking Rent Comparison Grids

Section 3: Report Submission and Review

Section 4: Tools

What are the Tools and why does GSA provide them?

Do I have to use these Tools?

What if I have technical problems with the Tools?

Tool #1: The FAR Contractor Tools Workbook

Are there any technical issues I should be familiar with?

Contractor’s Summary Page (Page 1 of the Workbook)

General/Office Space Rent Comparison Grid

Warehouse Space Rent Comparison Grid

Parking Rent Comparison Grid

Tool #2: The FAR Appraisal Report Template

I have the Template File. How and where do I save it to my computer?

After I have saved the file, how do I open it?

What is the Bookmark page and how do I use it?

How do I paste information from the Contractor Tools workbook into the Template?

What additional information do I import into the Report?

What photos do I need to include?

A Parking or Warehouse analysis was not necessary. Do I include all these empty pages?

Tool #3: The Regional Review Checklist

Section 5: Summary and Comments

FY 2026 Appraisal of Fair Annual Rent Contractor Instructions; Issued 3/31/2023; Page 3

Section 6: Addenda

Rent Comparable Data Sheet (Minimum Requirements)

GSA Building Shell

GSA Space Assignment Guide (excerpts)

Primary Regional Contacts

Services

Determination of Market Typical Leased Space

R/U Ratios and Load Factor Discussion

Tenant Improvements (Discussion)

Shell Appraisal Considerations

FY 2026 Appraisal of Fair Annual Rent Contractor Instructions; Issued 3/31/2023; Page 4

(FY 2026)

These Contractor Instructions (“instructions”) provide guidance for contractors completing Fair

Annual Rent (FAR) Appraisals for the General Services Administration (GSA). Presented in a simple question and answer and bulleted format, they will guide the contract appraiser through the appraisal process.

Because of the lead time needed for Federal agency budgeting, we project FAR rent cycles two plus years into the future. Instructions are issued annually 2-3 years in advance of the targeted fiscal rent cycle.

Calendar Year Published Fiscal Rent Cycle Document Name

2012 FY 2015 Contractor Instructions

FY 2014 - 2015

2013 FY 2016 Contractor Instructions

FY 2016

2014 FY 2017 Contractor Instructions

FY 2017

2015 FY 2018 Contractor Instructions

FY 2018

2016 FY 2019 Contractor Instructions

FY 2019

2017 FY 2020 Contractor Instructions

FY 2020

2018 FY 2021 Contractor Instructions

FY 2021

2019 FY 2022 Contractor Instructions

FY 2022

2021 FY 2025

Contractor Instructions

FY 2025

2023 FY 2026

FY 2026

FY 2026 Appraisal of Fair Annual Rent Contractor Instructions; Issued 3/31/2023; Page 5

Summary of Recent Changes and Clarifications

Training Requirements: Contractors and appraisers performing any work on the FY 2026 FAR are required to attend the FY 2026 online seminar “Understanding Fair Annual Rent Appraisal” at the start of the assignments.

Ten year level unserviced rent: The appraisal provides a current rental rate and subsequently a levelized unserviced rental rate based on a 10-year term. The FAR Contractor Tools workbook provides a tab to calculate the levelized rent, allowing you to input your projected unserviced rent escalations for the subsequent nine years. Based on your selected method of escalation ($ or

% escalations) the worksheet will calculate a level unserviced rent for the entire ten-year term.

The escalation factor(s) should be fully supported by the data from the comparables, market surveys, and surveys of local market participants. The levelization is limited to the unserviced rent, since GSA escalates the operating expense or services annually on a separate schedule.

Subject Property Size: Appraise the property based on the largest tenant size in the building.

This information is included in the Space Classification Report provided by the Regional

Appraisers. The appraiser shall use the Space Classification Report as the source document for the subject property.

Tenanted Floor R/U Ratio: This ratio recognizes rentable and usable space throughout the tenanted floors. This is the ratio to be used when adjusting comparables to the subject. The

Tenanted Floor R/U ratio correlates closely to how the private sector would determine the load factor in our buildings.

GSA Billing R/U Ratio: This ratio recognizes rentable and usable space throughout the entire building and an allocation of facility common area measured by GSA, but often not recognized in the private sector. To accommodate GSA’s billing systems, this is used to convert the appraisers’ concluded rates in the report to GSA Billing Rates.

Billing R/U Conversion: The market rent concluded for the tenanted floors will be converted to a GSA Billing Rate (by embedded formula) on the Contractor’s Data Summary and Conclusions

Form. This year, there are three valuation scenarios:

• As in previous years, BOTH unserviced rate and services are converted to the Billing R/U.

• In the second value scenario, ONLY the unserviced rate is converted to the Billing R/U.

The services remain at Tenanted Floor R/U.

• In the third value scenario, both the unserviced rate and the services remain at the Tenanted

Floor R/U.

FY 2026 Appraisal of Fair Annual Rent Contractor Instructions; Issued 3/31/2023; Page 6

Building Space Classification Reports (SCR): The region will provide the Contract

Appraisers with the Building Space Classification Reports. Region may provide a number of documents for each building, but the Space Classification Report is the only accepted source of building spatial data to be used in each appraisal. These documents help the appraiser visualize the various categories of space within the subject property. If Building

Space Classification Report is not available for a property, the GSA Billing R/U will be the basis for the subject, instead of the Tenanted Floor R/U.

Other Adjustments Category: After discounting the rate for subject’s higher R/U factor, would there be any advantage for subject’s opulent lobby and wide hallways? While our buildings could get penalized for larger common areas, there could be some market advantage for large lobbies and wide hallways. This adjustment, if any, can be included under the “Other

Adjustments” category.

Operating expenses: Provide adequate support for your estimates of market operating expenses, recognizing the energy conservation characteristics of the subject. Acceptable sources include expense comparables (primary), BOMA, IREM, Trepp, etc.

Selection of Comparable Properties: GSA has a wide variety of building types with a wide range in construction quality. When appraising US Courthouse and federal buildings; (which generally have a higher quality construction and finish) it is paramount that the selected comparables match or approximate class and construction quality of the subject properties. To achieve this task, the appraisers might have to expand the comparable search area beyond the typical market area. In the case of subject properties located in small communities, the search area for suitable comparables may need to be expanded beyond community, city or state boundaries.

Parking – separate or included in rent: Analyze and state clearly whether parking is included in rent, or offered separately. If parking is included in base rent, make appropriate adjustments for differing parking characteristics in the adjustment grid.

Parking rate analysis: Since the majority of GSA’s tenants are bulk users of our parking spaces, the Parking Rent valuation is oriented to the rates paid by users leasing multiple spaces, rather than toward retail single space. Rates should reflect the per-space market rate for the number of spaces generally required by users of space the size of your subject. The appraised parking rates should be standard or un-reserved rates - GSA does not require or charge reserved rates.

Inspections: At a minimum, at least one of the signatory appraisers must inspect the exterior of comparables.

FY 2026 Appraisal of Fair Annual Rent Contractor Instructions; Issued 3/31/2023; Page 7

Section 1: Introduction

What is the Fair Annual Rent (FAR) Program?

GSA is, in effect, the landlord to tenant agencies who occupy federal buildings nationwide. By law, GSA must charge its Federal tenants a commercially equivalent market rent. The Fair

Annual Rent (FAR) Appraisal Program is part of the process by which we determine and apply rents. In this program, we update rents for approximately 200 buildings annually, nationwide.

FAR rates for all of our owned buildings are updated on a cyclical basis.

What is Fair Annual Rent (FAR)?

Fair Annual Rent (FAR) is the annual amount that may reasonably be expected for the right to the agreed use of real property, as established by competition in the open market. FAR is a fully serviced rental rate; the annual rate includes the cost of all services except Security1.

For practical purposes, FAR is the equivalent of the market rent that 10-year tenants would pay for our properties, determined within the guidelines of the FAR Appraisal Program.

How does GSA establish Rents?

GSA engages independent third-party appraisers with local market expertise to appraise the appropriate fair annual rental rate (Fair Annual Rent or FAR) to charge our Federal tenants.

How does GSA use FAR Appraisal Reports?

FAR Appraisal reports are used for various purposes. They are used by GSA to set rates for our

Federal tenants. They are relied upon by asset managers, realty specialists, and other professionals throughout GSA in planning strategies for our assets and in helping GSA satisfy our tenants’ space requirements. After they are approved, FAR Appraisal reports are stored electronically in GSA’s Appraisal Data System (ADS) database. Contract appraisers should be aware that your appraisals are to be reviewed at several levels before approval. FAR appraisal reports will be available to customer agencies and will be used by real estate professionals throughout the organization.

How can I be considered as a contractor for FAR Appraisals?

Most FAR Appraisal contracts are managed locally by GSA’s 11 regions, who engage well-qualified appraisers with expertise in our markets. You must meet the following basic minimum qualifications to be engaged for FAR Appraisal work:

• You must be a certified general appraiser in good standing in the state in which the subject property is located. Temporary licensure is acceptable.

• Your report must meet the guidelines outlined in these instructions and must comply with the Uniform Standards of Professional Appraisal Practice (USPAP) in effect at the time of the appraisal.

• You must have competency in the subject’s market and expertise in analysis of market-oriented lease data (market rents, tenant improvements (TI), Rentable/Usable (R/U) ratios, etc.).

• You must be currently registered on the System for Award Management (SAM) www.sam.gov.

1 Security is managed and billed separately by the Department of Homeland Security; therefore it is not generally included in FAR analyses or in FAR rates.

http://www.sam.gov/

FY 2026 Appraisal of Fair Annual Rent Contractor Instructions; Issued 3/31/2023; Page 8

• You must meet any additional requirements of the individual solicitation for services

(Request for Proposal or RFP) issued by the region.

GSA uses a variety of competitive contracting vehicles to hire qualified appraisers. You can learn of contracting opportunities by:

• Contacting the regional appraisal staff in your area. A list of the regional appraisers is included in the addenda.

• Registering and looking at contracting opportunities posted on FedBizOpps at http://www.fedbizopps.gov.

What is the overall process for the Fair Annual Rent (FAR) Appraisal?

The Fair Annual Rent program provides independent, professional, and credible rent estimates for each fiscal year (FY). GSA requires estimates of rent to be projected for future fiscal years.

The overall process includes the following major steps:

• GSA determines the need for appraisals and engages independent contract appraisers to complete one or more FAR Appraisals.

• Upon award and prior to starting the assignment, contractors and appraisers performing any work on the FY 2026 FAR are required to attend the FY 2026 online seminar

“Understanding Fair Annual Rent Appraisal.”

• Contract appraisers perform the appraisal and develop the appraisal report, using Templates and Workbooks provided by GSA.

• Appraisers submit final appraisal reports to GSA as specified in their contract.

o The FAR Appraisal requires in-depth analysis of the local market and a comparison of executed and confirmed leases for properties competing directly with the subject, resulting in an indication of market rent for the subject space. Comparables selected must realistically reflect the character and quality of the subject property.

• For major markets a minimum of five comparables is required

• For other markets a minimum of three2 comparables is acceptable o At a minimum, at least one of the signatory appraisers must inspect the exterior of comparables.

o Additional analyses examine parking rates, rates for services, occupancy trends, service expense trends, and rental rate trends.

• The appraisal is reviewed, analyzing the criteria outlined in (but not limited to) the

Regional Review Checklist, which is included in the Contractor Tools.

• The reviewer may contact the contractor for discussion/correction of any concerns identified in the review process. After all concerns are addressed and corrections are made, the contractor submits final versions of the report (electronic PDF format).

• The reviewer checks the final version for corrections and creates a final review report.

(The reviewer cannot make any edits or changes to your final report.)

• Upon approval, the contractor submits an invoice consistent with the instructions in the contract, and the reviewer approves the invoice for payment.

• The reviewer consults with the regional portfolio director for rates concurrence. The contractor’s appraisal, the regional review, and the regional portfolio director’s

2 You may be asked for additional comparables to adequately support your conclusions. You must provide a sufficient number of comparables to accurately reflect the market and analyze the subject.

http://www.fedbizopps.gov/

FY 2026 Appraisal of Fair Annual Rent Contractor Instructions; Issued 3/31/2023; Page 9 concurrence are sent to Central Office for final review and consensus. Any additional concerns that arise as a result of the Central Office review will be directed to you through the regional appraiser who engaged your work. In some cases, your regional appraiser may ask for additional clarification or support as a result of concerns raised during the Central

Office review.

• Upon Central Office approval, the rates are available for future occupancy agreements

(OA)3.

Is the program the same every year?

No. The program evolves over time, therefore your contract and your appraisal report will include these specific FAR Contractor Instructions by reference. Your contract with GSA governs your obligations and specifies the version of these instructions applicable to your assignment.

The Fair Annual Rent Appraisal Program is an ongoing program. The requirements get updated as necessary, but the underlying requirements are the same from year to year. The program requires reliable up-to-date indicators of market rent for all of GSA’s properties on a regular basis.

3 OAs provides our tenants with a level, base rent for 10 years. Expenses for services are adjusted during the term of the OA. Security is not included because it is managed and billed separately by the Department of Homeland

Security.

FY 2026 Appraisal of Fair Annual Rent Contractor Instructions; Issued 3/31/2023; Page 10

Section 2: The Appraisal Process

These Instructions are not intended to direct you how to appraise or analyze rental data, but are intended to highlight some unique situations and to explain GSA’s needs and requirements. You have been hired because of your expertise, and GSA relies on your analysis for establishing rents for our Federal tenants FAR Appraisals are subject to scrutiny at every level of the process.

While GSA has a mandate and requirement to charge our tenants a market-equivalent rent, the rent paid to GSA is a significant expense for the agencies/tenants and can affect their ability to serve their core missions.

In this appraisal process, details are critical. The smallest adjustments can impact millions of dollars of revenue over the term of our 10-year occupancy agreements (OA). Your appraisal is part of the process we use to establish market-equivalent rents for billions of dollars in annual rent payments for Federal tenants in GSA’s owned inventory. Accuracy and credibility are critical to the program and support GSA’s mission:

"The mission of GSA is to deliver the best value in real estate, acquisition, and technology services to government and the American people."

Our properties are located in diverse markets with varying market practices. We rely on your expertise to analyze the local market and determine the market-equivalent rent for our property. You must analyze local market practices as they relate to measurement and description of leased space. Present your final conclusions in terms of a full service rate on an annual basis, per rentable square foot. If a lease comparable states the rate in terms of

Usable area, convert this rate to a rent per rentable square foot on the Rent Comparable

Data Sheet. This conversion is necessary as the Space Rent Comparison Grid (adjustment grid) only accepts rate per rentable SF.

Scope of Work for FAR Assignments

GSA provides a description of the minimum scope of work (scope for the appraisal assignment) in the FY 2026 FAR Appraisal Report Template (“Report Template”). Also provided is a

Consolidated Statement of Work that highlights some of the appraisal-specific conditions, as well as contractual obligations.

It is the appraiser’s responsibility to recognize and incorporate all efforts necessary to produce a credible analysis and report. You can expand the scope of work provided in the template, but you cannot reduce the scope of this assignment. It is GSA’s expectation that the appraiser will use his/her knowledge of the local market to analyze the market sufficiently, and that the report will convey sufficient detail that users will understand the market and conclusions. At a minimum (as presented in the template):

This assignment involves analysis of pertinent market factors to determine the Fair Annual Rent

(FAR) for the subject property (and for the subject parking, if included in the assignment). The appraiser has researched the competitive market to the extent necessary to understand the subject’s position in the market and has identified properties that allow for realistic comparison with the subject. The subject building data for this analysis were obtained from sources such as

GSA, public records, and the appraiser’s actual inspection of the building, relying on measurements provided by GSA, unless indicated otherwise. Market, lease, and expense data were obtained from public records, multiple listing services and commercial data sources, brokers, owners, tenants, and participants in the market. Data was verified by parties to the transactions or by those having direct knowledge of the transactions, as indicated in the Rent Comparable Data

Sheet for each property.

FY 2026 Appraisal of Fair Annual Rent Contractor Instructions; Issued 3/31/2023; Page 11

The appraiser has inspected the subject property to the extent necessary to understand the property but has relied on GSA for certain building information, tenancy information, expenses, if available, and other information pertinent to the occupancy, construction, and condition of the building. Assumptions regarding Federal tenancy and market-based rents are described in the section labeled Hypothetical Conditions, Extraordinary Assumptions and Limiting Conditions.

In this analysis, the appraiser has analyzed properties that compete with the subject property and has used lease and expense data from those buildings to arrive at an informed estimate of the subject’s Fair Annual Rent (FAR) expressed as a fully serviced rate per rentable square foot. The appraiser has analyzed market data related to services provided in the subject building and has provided a justified market-based estimate of expenses for the subject, accounting for building-specific energy conservation characteristics. The appraiser has analyzed the competitive market conditions and understands local market practices (such as measurement parameters, lease size, tenant improvements). The appraiser has investigated the market and provided informed estimates of anticipated market trends applicable to the leased space market and to the costs of services provided in the subject property.

Since the objective of this assignment is lease analysis, pertinent lease data has been analyzed.

The development of the Sales Comparison, Replacement Cost, and other sections of the Income

Capitalization Approaches to value were not pertinent. A formal Highest & Best Use Analysis was not required, as rental analysis for existing space is the primary consideration.

The results of the appraiser’s analyses are provided in this Appraisal Report, which summarizes the data and analyses in a format and to an extent specific to GSA’s needs. Additional supporting data and analyses are in the appraiser’s work files. The appraisal, the analyses, and the report are intended to comply with the provisions of the Uniform Standards of Professional Appraisal

Practice (USPAP) in force as of the appraisal date, applicable to the development and reporting of this rental analysis. The report provides sufficient data and support to lead readers to the appraiser’s conclusions. The report is intended to comply with the requirements of USPAP

Standards Rule 2-2 for an Appraisal Report, as well as any supplemental standards imposed by the GSA.

What is the subject property or subject space I am appraising?

The determination of the subject property is a critical point in any appraisal analysis, and identifying the subject is a USPAP requirement. In this case, you are seeking a single market rate applicable to the amount of space occupied by the largest tenant (refer to Space

Classification Report) in the building, based on the typical or average quality throughout the entire building, at a specific point in time, assuming the building were available for use in the private sector. Comparable leases selected should be suitable for realistic comparison to the largest tenant size in the building, and consistent with the character, quality of such space.

Although your conclusion must be stated as a single rate for the entire building (unless otherwise requested), the rate you select must account for significant differences within the building with greater or lesser appeal. In developing that average rate, recognize the full range of characteristics for the floors, views, etc., and be aware of high profile, premium areas or inordinate amounts of less desirable space. In rare cases, the regional appraiser may request separate, supported rates for distinct areas in the building.

In your analysis:

• Consider existing TIs that are average for, or typical of, the building (unless you are appraising warm-lit-shell space or as-renovated space, per instructions). The rate should be based on the “as is” condition at a single point in time (the appraisal date). Consider condition and quality that reasonably reflects existing tenant finish and common area finish

FY 2026 Appraisal of Fair Annual Rent Contractor Instructions; Issued 3/31/2023; Page 12 throughout the building.

• Rents are fully serviced rates, but do not include Security which is managed and billed separately by the Department of Homeland Security.

• Consider analyzing the subject’s efficiency relative to the locally recognized market ceiling R/U level rather than the quoted R/U level in each individual lease comparable. Understand that load factors stated in leases are often based on market norms, and are often not based on precise measurements (as in GSA’s calculated

R/U).

Keep in mind that your subject benefits from the building amenities present and is subject to all positive and negative characteristics affecting the building’s ability to generate rent. Your research and analysis should consider all factors affecting rent in the subject building.

How does GSA suggest I begin the appraisal process?

The following suggestions might make your appraisal and analysis more efficient.

• Do the mandatory FY 2026 online seminar “Understanding Fair Annual Rent Appraisal” and building inspection early in the process.

• After receiving the assignment, get in touch with the building management to gain access

(GSA will provide this contact information in the contract materials). An early and thorough inspection will give you an understanding of the unique characteristics of the subject, so you can select the comparable properties that allow for the most realistic comparisons for all characteristics, including the subject’s size (largest tenant) and lease term (10-years).

• Review Building Space Classification Reports prior to the building inspection to understand the space in the building. This report is the only accepted source for your subject building spatial data.

• As you conduct your inspection, make sure you fully understand the building; ask questions, seek clarification. Understand relevant recent improvements that could affect rent. Be aware of, and consider significant energy efficient improvements and classifications, both in analyzing operating expenses, and in the selection of comparable properties.

• Analyze supply and demand factors in your market. Understand how space in your market is measured and how load factors and R/U ratios are determined. This will guide and limit your selection of comparable rental properties. Due to the uniqueness of US Courthouses and federal buildings, the search for similar quality construction and finish might require expanding the search area beyond typical market area.

• Verify each lease and develop Rent Comparable Data Sheets for each lease selected for comparison. State rates per Rentable area (RSF), fully serviced.

• As you gather information on comparable leased properties, ensure you understand the measurements utilized in various leases, their applicable R/U ratios, their TIs, services, etc.

These elements are critical to the analysis of GSA properties.

• Enter your data in the Contractor’s Data Summary and Conclusions page of the Contractor

Tools workbook as soon as possible. This will help you understand the subject building in relation to your comparables and the market. Entering that data will populate fields throughout the Contractor Tools workbook.

• GSA will provide the Building Space Classification Report. Due to security concerns, FY 2026 Appraisal of Fair Annual Rent Contractor Instructions; Issued 3/31/2023; Page 13 floor plans may be provided on a case by case basis. GSA recognizes the general guidelines of the American National Standards Institute (ANSI) and the Building Owners and Managers Association (BOMA), together known as the ANSI/BOMA standards in categorizing space but there are some differences. Generally, you will not need to measure the building or tenant spaces. Please review any building detail we have provided as you walk through our property.

• The character of the building, its common areas, intended and existing uses, and its overall quality and appeal will guide your consideration of relative building efficiencies and selection of comparable leases.

• Excess Ceiling Height: In spaces with excess ceiling height (courtrooms, etc.) GSA treats this amenity differently depending on the floor location.

o First and Top Floors: Appraise As-Is with regard to any excess ceiling height.

o All Other Floors: Appraise without regard for any excess ceiling height. On these floors, GSA charges tenants separately for this amenity.

How is the value conclusion reported?

The Contractor Tools workbook only recognizes rates per rentable square foot (RSF). If your market typically leases space on the basis of usable area, restate your rates in terms of RSF to enter them in the adjustment grid. If restating your rates, provide rationale for your conversion methodology on the Rent Comparable Data Sheet.

The goal is to conclude a market rate based on the Tenanted Floor R/U and all other pertinent factors. From your concluded market rate, the Contractor Tools workbook CONVERTS THE

CONCLUDED APPRAISED RATE TO GSA specific rates and calculates the prospective values based on your trend factors, with the same factor applied to all future years. In the first valuation scenario, BOTH the unserviced rent and services are converted to the building R/U. In the second scenario, ONLY the unserviced rent is converted to the building R/U. In the third scenario, NEITHER the unserviced rent nor the services are converted to the building R/U. The conversion of rates to building R/U accommodates GSA’s space assignment and billing systems.

FY 2026 Appraisal of Fair Annual Rent Contractor Instructions; Issued 3/31/2023; Page 14

How does GSA define building areas?

The following table outlines the major space definitions applicable to this assignment: Note that

GSA does not distinguish between Building and Floor Common areas. This variation from

BOMA can result in a higher calculated R/U ratio.

GSA Term

(other industry terms)

GSA Working Definition Notes

Usable Area (ANSI Usable)

All assignable and Joint Use space within the building. This calculation is used to determine the actual space occupied by tenants.

For purposes of this assignment, this is the Usable area provided by GSA.

Building

Common Area

The area that provides services, support, or horizontal circulation to building tenants.

Does not include Nonassignable space (see below). Building Common area can include hallways and corridors, rest rooms, mechanical areas, and custodial areas, etc.

GSA identifies common areas and classifies space based on guidelines outlined in the PBS Space Assignment

Guidance and other parameters. Definitions of common areas generally follow BOMA guidelines; however GSA does not distinguish between Building Common and

Floor Common areas in our calculations.

Rentable Area

(ANSI

Rentable)

The tenant’s Usable area plus their share of

Building Common area. Nonassignable areas (see below) are not included in this calculation. Total Rentable area is all Usable area plus all Common area.

Some markets determine R/U ratios by floor and utilize basic Rentable area in determining load factors

Nonassignable

Area

All of the areas within a building NOT assignable to tenants (and not included in

Rentable area) including: Structured

Parking (STP), including garages, rooftop parking and parking decks that are within the

Gross area of the building. Unmarketable:

all space within the building that cannot be assigned. Vertical Penetrations: stairs, elevator shafts, flues, pipe shafts, vertical ducts, and their enclosing walls.

Vertical Penetrations built for the private use of a tenant are classified as Usable space and are designated as

Tenant Floor Cuts (TFC). Examples of TFC spaces include connecting stairs, private elevators, and double-height courtrooms (where the courtroom has a slab penetration).

Building Gross

Area

For office buildings: Rentable +

Nonassignable spaces. For warehouse buildings, Gross area is generally the area of the building based on exterior measurements.

For practical purposes, this is the measurement that encompasses all space within the building. Some markets rent on the basis of Gross area, but Gross area leases are usually applicable only to single-tenant buildings.

Tenanted

Floor Area

This area considers the typical tenanted floors in the subject. It typically excludes basement, mechanical and penthouse floors from impacting the R/U ratio.

The Tenanted Floor R/U ratio recognizes rentable and usable space throughout the tenanted floors. It is used when adjusting comparables to the subject.

Billing Area This area includes the Tenanted Floor Area, plus basement, mechanical, penthouse floors, and an allocation of any facility common area. This represents the area measured and used by GSA’s billing systems.

The Billing R/U ratio recognizes rentable and usable space throughout the entire building and an allocation of any facility common area. This ratio is used to convert the concluded rates in the report to accommodate GSA’s billing systems.

Voids Per ANSI/BOMA: “Absence of a floor within the exterior enclosure of a building in excess of 10 square feet (GSA-PBS uses 9 square feet or greater) where a floor might otherwise be expected or measured, that is typically in the plane of the upper floors adjacent to the following Non-assignable space: multi-story atria or lobbies, light wells, auditoria or the area adjacent to partial floor, permanent mezzanine, or unclassified mezzanine at a given floor level. Voids are distinguished from major vertical penetrations as defined in ANSI/BOMA Z65.1-2010.

FY 2026 Appraisal of Fair Annual Rent Contractor Instructions; Issued 3/31/2023; Page 15

How does GSA ‘s rent component compare to the private sector

GSA Terminology Industry Equivalent

Unserviced Rent Shell Rent (plus RE taxes and Insurance)

Services Operating Expenses (except security, RE taxes and insurance)

Full Service Rent = Unserviced Rent +

Services

Full Service Rent = Shell Rent + Operating Expenses (does not include security)

Warm-Lit-Shell Rent * Cold-Dark-Shell plus base GSA TI in place

*See chart on Page 39 for further clarification on GSA Warm-Lit-Shell requirement

How do private sector R/U ratios relate to GSA R/U ratios?

R/U ratios, Common Area factors (CAF), load factors, and core factors are terms describing the relationship between Usable area and Rentable area. Local practices differ with regard to the description of this relationship. Compare the relative efficiency of comparables to the subject property’s Tenanted Floors.

Consider among other factors, relative R/U ratios; how R/U ratios were calculated; the nature of the common areas, how well those common areas support effective use of the building, and how your local market measures and treats similar areas in your comparable properties. In many markets, load factors across the market are fairly consistent, and within an acceptable range, may not influence rent. Adjustments should be considered when the subject is outside the acceptable range, or above the market ceiling.

GSA R/U ratios4 are often greater than buildings in the private sector. However, sometimes the market defines its load factor using basic Rentable; differing practices may produce different units of comparison. Our Usable areas are often less than what they would be in the market as we do not distinguish between Floor Common and Building Common nor do we differentiate between single-tenanted and multi-tenanted spaces. Conversely our basements or mechanical areas are often larger than basements found in private sector buildings and are included in

Rentable area. The appraiser must fully understand how each comparable has been handled and be able to compare it to the subject. We provide the Tenanted Floor R/U ratio as the basis for analysis, as it is more consistent with market norms than the Billing R/U.

Even in markets where rents are stated on a Usable area basis, the costs of maintaining Building

Common areas are part of the income/expense formula and are reflected in rents. How such costs are treated will influence your conclusion. Your analysis, your report, and your conclusions must accurately describe and incorporate that load factor on a consistent and realistic basis. You must describe how the load factor is applied in each lease and make appropriate adjustments.

4 Although our buildings may have greater than typical R/U ratios, they are not all inherently inefficient, as a large

R/U ratio might imply. The additional Common area present in many GSA buildings significantly enhances appeal and improves the functionality of intended uses. On the other hand, other buildings have inefficiencies that do not enhance the functionality of the building such as inordinate basement Common area. GSA’s use of

Tenanted Floor R/U better aligns the subject with the market. The adjustments you make should recognize the

Tenanted Floor R/U and the subject you are appraising.

FY 2026 Appraisal of Fair Annual Rent Contractor Instructions; Issued 3/31/2023; Page 16

I understand the process requires forecasting rents. What are the requirements for prospective rents?

Because of the Federal budget cycle, GSA’s Federal tenants need to project rent expenses in advance. We establish rent levels 18 to 36 months in advance of new or renewing occupancy agreements (OA). This means you as an appraiser will effectively be estimating (projecting) several rates, based on current rates. Your report will reflect rates for:

• The appraisal date (which is the date of your inspection).

• The effective date (which is the first day of the targeted fiscal year October 1, 2025 – FY

2026).

• Interim dates (the first days of the fiscal years between the appraisal date and the effective date).

Our Contractor Tools workbook is designed to help calculate trends from the appraisal date to the effective date and to calculate interim projections as well. For instance, an appraisal performed June 10, 2023, would have an appraisal date of June 10, 2023, and an effective date of October 1, 2025, which is the first day of FY 2026. The Contractors Summary spreadsheet will also indicate your projected rates for 10/01/2023, and 10/01/2024. GSA may use any of these rates in OAs, depending on the timing and specific guidance.

Your contract will specify the targeted fiscal year. In the Contractor Tools workbook, the

Contractor’s Data Summary and Conclusions page, enter the appraisal date (date of your inspection) and the effective date of the targeted fiscal year (e.g., 2026). The spreadsheet calculates interim dates at the beginning of earlier fiscal years.

The spreadsheet will show Prospective values5. Compliant with USPAP, your report must disclose that these are Prospective values and address the uncertainties related to projecting values. We have included that language in the Report Template. It is important to discuss and support your reasoning for the trend rates you select.

Occasionally, we may require retrospective rates. The spreadsheet will handle the dates and calculations in the same manner for retrospective appraisals.

I’ve analyzed market rents before. How is this different?

The basic process is much the same as other market rent analyses you have done, but there are several critical differences. Many of our buildings are unique; some are the only large buildings in their markets; many have R/U ratios that differ from other buildings in the market; many include finishes and construction characteristics well beyond office standards. Comparables must be of similar class and quality as the subject property.

In this appraisal you are determining a single rate that will apply to the tenanted space in the building, rather than a specific unit or defined space. We have included language to that effect in the Report Template.

• Describe the generally accepted method of measurement in your market. GSA systems require rates to be stated in terms of fully serviced and rentable square foot basis.

5 By default, the Contractor Tools workbook converts the concluded rate for tenanted floors to a GSA Billing rate and calculates the Prospective values based on your trend factors, with the same factor applied to all future years.

You can change the formulas for the projections to reflect different trend factors if you need different rates for each year.

FY 2026 Appraisal of Fair Annual Rent Contractor Instructions; Issued 3/31/2023; Page 17

• Analyze and understand the manner in which your market handles TIs. In this appraisal, you are assuming average TIs in the building, unless you are asked to provide warm-lit-shell rates, renovated rates, or multiple rates. Understanding your market and the individual leases you are analyzing will help you realistically adjust to the subject’s existing TI. (See the additional discussion of TIs in the addenda.)

In addition to the fully serviced rent, the result must reflect the appropriate rate for a 10-year level unserviced rent.

• Your final rate indication, after all adjustments (except levelization) and reconciliation must reflect a realistic value for a starting rate for a 10-year term. Since GSA’s end goal is a levelized unserviced rent for a ten-year term, input your projected unserviced rent escalations for the subsequent nine years in the provided Rent Levelization Worksheet.

Based on the selected method of escalation ($ or %) the chart will calculate a level or average unserviced rent for the entire ten-year term. The escalation factor(s) should be fully supported by the data from the comparables, market surveys, and surveys of local market participants (buyers, sellers and brokers/agents). The levelization is limited to the unserviced portion of the rent since the operating expense or the services are escalated annually on a separate schedule.

• GSA provides its tenants with a level unserviced rent for 10 years. We adjust charges for operating expenses (services) during that term, based on specific inflation factors.

• On the Rent Comparison Grids, Section 3, the current rates are the contract rates reflected in the leases you are analyzing expressed in full service and RSF basis.

• We will use your unserviced rate and your estimates of the current costs of services to establish rates for our Federal tenants.

In this appraisal, we want current and projected rates.

• The inspection date is the date of appraisal, but the effective date is the first day of the targeted fiscal year requested in your contract. In some cases, we may request retrospective appraisals. The Contractor Tools workbook can help you calculate the projected rates.

• We recognize the inherent risks of projecting values and rates into the future, but for

Federal budget planning purposes it is unavoidable. Your projections must be well reasoned and adequately supported. You are not limited to straight-line projections (up or down). Your projections should reflect your best judgment regarding your market for each future year in the projection.

• In the Contractor Tools workbook, calculations default to straight-line calculations based on the rate you enter. If you choose to use different projections, change the calculations and enter the appropriate rates in the Rental Rates Conclusions section for each fiscal year.

Explain your methodology and reasoning in your report.

The Rent Comparison Process

This section addresses the analysis of rents, as well as the data and adjustments required and encountered in the process, focused on the analysis of General Use (GU) or Office space. The requirements for Warehouse space are generally the same. Analysis of parking rates does not involve as many considerations, but again, the process is much the same.

FY 2026 Appraisal of Fair Annual Rent Contractor Instructions; Issued 3/31/2023; Page 18

The Report Template (see Section 4: Tools) includes brief instructions for the various sections of the report (the market analysis, the property description, etc.). To provide a credible report and an informed estimate of FAR rates, you need to understand and describe the market in which the subject is located and the subject’s position in that market.

While it is not necessary to describe the global economy, the user of your report needs to understand the major market characteristics and the property-specific characteristics affecting the subject’s ability to generate income. The user also needs to understand the outlook for that market. Your analysis should be thorough enough to lead you to informed decisions and the reader to similar conclusions. The appraisal report should be concise and should include all supporting data.

Selection of Properties for Comparison

Your selection of the properties/leases in the comparison process is critical to the outcome of the analysis. It is your responsibility to understand the market to the extent you can make informed determinations regarding critical market elements such as building location, building class and position within the market. In major and active markets, a minimum of five comparable leases are required. In smaller and less active markets, while at least three comparable leases are required for the analysis, you must provide enough comparable leases to reflect the market and support a credible conclusion.

A thorough understanding of the character, quality, and condition of your subject will guide your analysis and description of the subject property. It will also guide the selection of properties for comparison. Ideally, the properties (leases) you select for comparison will be similar to the subject in:

• Size (competitive lease sizes based on the largest tenant space size in the building),

• Building efficiency, based on Tenanted Floor R/U,

• Construction quality and character with similar amenities and appeal. In some cases, the appraiser may need to expand the search area beyond the typical market area, city, or even state.

• TIs (average as-is TI in the subject),

• Tenancy - based on ten-year lease term or occupancy

• Energy conservation and “green” characteristics – features, certifications, etc.

As in a traditional sales comparison approach, this rental comparison should analyze properties/leases offering a realistic comparison. They should share critical characteristics with the subject. They should represent the market that competes most directly with the defined subject, have similar income characteristics and yield realistic values. Your report should clearly explain your selection of the specific properties used in the analysis.

The data requirements for this analysis are greater than for other rent studies. You need to understand the lease structure, building characteristics, services provided, individual building

R/U ratios, etc., for each property in the comparison. Unless known R/U factors are available for your comparables, the economic market R/U factor should be used for comparison to the subject.

The addenda section titled Rent Comparable Data Sheet (Minimum Requirements) outlines the minimum data required for this analysis. We require you analyze actual, verified, arm’s-length leases. Pending leases or listings may provide additional support, but at least five verified leases are required as the basis of your analysis. Verification must be with a party knowledgeable of the transaction. Indicate the name of that party and their relationship to the transaction on the

FY 2026 Appraisal of Fair Annual Rent Contractor Instructions; Issued 3/31/2023; Page 19 data sheet.

The Rent Comparable Data Sheet in the addenda describes the data essential to the analysis.

You can present that data in any reasonable format, but all of the data elements presented on our

Rent Comparable Data Sheet are required.

At a minimum, at least one of the signatory appraisers must inspect the exterior of comparables.

What if I’m appraising a single-tenanted or Special Purpose building?

When you appraise Single-tenant or Special-purpose buildings, pay special attention to specific instructions identified in the Appraisal Bid Sheet or otherwise provided by the regional appraiser.

Before beginning the assignment, contact the regional appraiser to discuss additional assignment conditions and special instructions. As a general rule, you should select comparables, make adjustments and provide a rate that is appropriate based on the federal building’s actual use, utility and size.

Appraisal of a single-tenant building does not differ much from the standard process. In that you’re targeting the largest tenant in the building in all appraisals, the single tenant consideration is the same. You will select comparable leases based on that size. Additional considerations when appraising a single-tenanted building may include:

• Type of tenant: Depending on the building class, if this is an agency headquarters building with above market quality and appeal, you may need to widen your search parameters to include corporate headquarters buildings.

• Lease size: Ideally, use leases of entire buildings, similar in size to your subject. In such cases, differences in the method of measurement must be considered.