MCC Superseding JOTFOC.pdf

UNCLASSIFIED

Justification for Other Than Full and Open Competition, Superseding Lease Transaction

PROJECT NUMBER: AAF-PR-24-0156

Agency Name: Millenium Challenge Corporation (MCC)

1. NATURE AND/OR DESCRIPTION OF ACTION BEING APPROVED.

The Millenium Challenge Corporation (MCC) currently leases 111,373 rentable square feet (RSF) / 96,673 ABOA SF of office and related space at 1099 14th St., NW, Washington, DC, under lease number MCC-14-Lease-0003. The current leased premises consists of the entirety of floors 6 and 7 and approximately two-thirds of the 8th floor consisting of 28,268 RSF. The current lease expires November 30, 2025. Based on a comprehensive workplace analysis, MCC has determined that it can reduce its space at the current location from 111,373 RSF to 83,105 RSF (a reduction of 28,268 RSF or over 25%) by returning the partial 8th floor to the lessor, which is largely vacant and underutilized.

Approval is requested to negotiate a superseding lease transaction with the incumbent Lessor without full and open competition for continued occupancy at this leased location. A superseding lease action of 83,105 RSF with a 10-year term plus any offered rental abatement period would allow MCC to reduce its leased premises and rental rate one year before the scheduled expiration of the existing lease, and preserve its substantial investment in the current premises, which is less than nine years old. The procedures for pursuing a superseding lease are detailed in GSAR 570.404: Superseding Leases.

2. DESCRIPTION OF THE SUPPLIES OR SERVICES REQUIRED TO MEET THE AGENCY’S NEEDS

(INCLUDING ESTIMATED VALUE).

To satisfy the MCC’s mission requirements, the facility must be capable of providing the following:

● Proximity to a Metrorail Station within 2,640 walkable linear feet;

● Predominant minimum finished ceiling heights of 8’6” throughout;

● Predominant minimum column spacing of 25’ by 25’ or equivalent;

● Access to a weather-protected loading dock able to accommodate one standard delivery truck;

● Ability to meet ISC Level II security requirements; and

● Horizontally and vertically contiguous space located on no more than three (3) floors, with no more than one partial floor.

This requirement is for a minimum of 64,628 ABOA SF to a maximum of 72,152 ABOA SF of space for a 10-year firm term (plus rental abatement period) to commence no later than December 1, 2025. The estimated average annual cost of this superseding lease action is $61.19/RSF per year for an average annual cost of $5,085,471 and a total contract value of $62,754,716. There is no vacant Federal Space available in the delineated area that meets the agency's needs. The delineated area is defined as:

North: M Street, NW from 21st Street, NW to 14th Street, NW, and Massachusetts Avenue, NW from 14th Street, NW to 11th Street, NW.

East: 11th Street, NW from Massachusetts Avenue, NW to Pennsylvania Avenue, NW.

South: Pennsylvania Avenue, NW from 11th Street, NW to 15th Street, NW, and E Street, NW from

Pennsylvania Avenue, NW to 21st Street, NW.

West: 21st Street, NW from E Street, NW to M Street, NW.

3. IDENTIFICATION OF STATUTORY AUTHORITY PERMITTING OTHER THAN FULL AND OPEN

COMPETITION.

41 U.S.C. 3304(a)(1): Only one responsible source and no other supplies or services will satisfy agency requirements. This statutory authority is implemented through GSAR 570.404. In accordance with GSAR 570.404, use of the sole source authority is appropriate where favorable market conditions allow the Government to renegotiate favorable lease terms over a new lease period and it is determined that award to any other offeror would result in substantial duplication of costs to the Government that are not expected to be recovered through competition.

4. DEMONSTRATION THAT THE PROPOSED CONTRACTOR’S UNIQUE QUALIFICATIONS OR

NATURE OF THE ACQUISITION REQUIRES THE USE OF THE AUTHORITY CITED.

GSAR 570.404 and 570.402-5 allow for negotiation with the incumbent Lessor when a cost-benefit analysis (CBA) shows that the Government cannot expect to recover relocation and duplication costs through competition.

MCC placed an advertisement conforming to GSAR 570.402-2 on SAM.gov from July 15, 2024 through July 26, 2024, and received three (3) responses, including one from the incumbent. The incumbent Lessor's expression of interest (EOI) proposed to take back MCC’s space on the 8th floor, thereby reducing MCC’s square footage from 111,373 RSF to 83,105 RSF, and to reduce MCC’s rental rate from

65.71 per RSF to $58.00 per RSF, subject to an annual escalation of 2.5%, effective December 1, 2024 (i.e., one year before the current lease expiration date of November 30, 2025). The incumbent offered a term of 10 years commencing upon the expiration of the current lease term, together with a rental abatement period of 16 months. The offered rent includes a tenant improvement allowance (TIA) of $92.14 per ABOA SF.

The lowest cost party expressing interest at an alternative location that can potentially meet the Agency’s requirement offered 77,260 RSF at a full-service rental rate of $50.00 per RSF for a 10-year term with no rent abatement period. This EOI included a TI allowance of $90.00 per ABOA SF.

All rents were compared using a Cost Benefit Analysis (see Exhibit A). Based on the EOIs received, the estimated savings of a superseding lease action with the incumbent lessor, after factoring in move and replication costs and before any formal negotiations with the incumbent Lessor, is approximately $7,350,055 in nominal terms, which is equivalent to a savings of $10,314,840 in net present value terms over the 11-year comparison period from December 1, 2024 through November 30, 2035.1 Additionally, if MCC were to relocate, there is a significant possibility that MCC would not complete the relocation until after the current lease expires. This would put the government into holdover at the existing building and result in MCC paying an above-market rent for more space than it needs for a longer period of time. A superseding lease action would also provide MCC with 5,855 RSF of additional space at a lower average cost per square foot ($59.23/sf) than the lowest price alternative ($72.36/sf).

The cost of MCC relocating using the low-cost quote exceeds the cost of remaining at the current location. The savings to the Government is $10,314,840 in net present value terms over the 11-year comparison period from December 1, 2024, through November 30, 2035. Based on this cost-benefit analysis, the Government cannot expect to recover relocation and duplication costs through competition.

Therefore, the Government intends to negotiate a succeeding lease and remain at its current location.

5. DESCRIPTION OF EFFORTS MADE TO ENSURE THAT OFFERS ARE SOLICITED FROM AS

MANY POTENTIAL SOURCES AS IS PRACTICABLE.

Per the requirements of GSAR 570.402-4, the MCC Lease Contracting Officer placed an advertisement on the Contracting Opportunities domain of SAM.gov that was active from July 15, 2024, through July 26, 2024. In addition, Savills Inc., MCC’s broker partner, conducted market research using CoStar.com and

1Because of the 16-month difference in offered rent abatement, the final 16 months of term cannot be compared. Nevertheless, assuming MCC will have a continuing need for a comparable amount of space, any difference in rent between the two locations during this 16-month period should be negligible.

responded to numerous telephone and email inquiries from building owners and landlord representatives inquiring about the space requirement. Three (3) responses were received, including one from the incumbent.2

6. DEMONSTRATION BY THE CONTRACTING OFFICER THAT THE ANTICIPATED COST TO THE

GOVERNMENT WILL BE FAIR AND REASONABLE.

Recent market surveys, further discussed below, conducted by Savills show that the rental rate within the delineated area ranges from $38.50 to $79.00 per RSF with an average of $61.08 and a median of $65.00 per RSF, according to data from CoStar Group, which is attached hereto as Exhibit B. The proposed rental rate for this succeeding lease of $58.00 per RSF is well below the market average rent and the median rent for the delineated area, and the succeeding lease rent is deemed fair and reasonable by the MCC Lease Contracting Officer. Through the formal solicitation process, MCC will work to negotiate this rate even lower.

7. DESCRIPTION OF MARKET RESEARCH CONDUCTED AND THE RESULTS.

On June 4, 2024, MCC’s lease broker, Savills conducted market research using CoStar to search for buildings with a minimum of 77,500 RSF / 64,628 ABOA SF of available contiguous space within the delineated area. Survey results showed 34 potentially acceptable alternate locations that might meet the agency’s needs within the delineated area. The estimated first-year full service asking rental rates among the properties surveyed ranged from $38.50 to $79.00 per RSF. (It is important to note that these first-year rates do not include annual market escalations or potential market concessions, as would be obtained from direct negotiation. Current full-service office rates typically include approximately $60.00-

90.00 per RSF of TI allowance concession and 12-15 months of rent abatement for a 10-year firm term plus the abatement period.) The list of 34 was narrowed to the most suitable 11 properties for comparisons and to determine which sites should be toured in person.

An in-person site survey was completed by the evaluation panel, Contracting and other key MCC stakeholders of the top 4 most suitable properties on June 25, 2024. The results from the market research conducted by Savills and the site visits both demonstrated that while there are several sites within the delineated area that could meet MCC’s needs, none had any distinct advantages over the current space, including price. It was determined that a special notice should be posted to SAM.gov to publicize MCC’s intent to award a superseding lease.

On July 15, 2024, a special notice was published to SAM.gov with MCC’s intent to award a superseding lease to the current lessor unless a potential lessor could offer a location that is both suitable to MCC’s defined needs, and a lower cost than awarding a superseding lease, including the cost of relocation and replication costs. Of the three respondents to MCC’s special notice to procure a superseding lease, the first was the incumbent, the second wasn’t technically qualified, and the third offered space at a higher rental rate and overall cost than the incumbent and failed to respond to the Contracting Officer, as required by the posting. This market research demonstrates that it is in the government’s best interest to negotiate a superseding lease with the incumbent lessor.

8. OTHER FACTS SUPPORTING USE OF OTHER THAN FULL AND OPEN COMPETITION.

There are no concerns or deficiencies identified regarding the current Lessor’s past performance, and property inspections have shown the space to be well maintained and in good condition.

2 The expression of interest from 1201 Eye St., NW, was non-responsive in that it did not meet the requirements for minimum ceiling height, minimum column-spacing, and maximum number of floors. The expression of interest from 1152 15 St., NW, met the stated minimum requirements, but was not properly submitted to the MCC Contracting Officer as instructed in the SAM.gov Advertisement. Nonetheless, MCC has elected to treat the expression of interest from 1152 15th St., NW, as the low-cost alternative for purposes of conducting a cost-benefit analysis in support of this JOTFOC.

9. LIST OF SOURCES, IF ANY, THAT EXPRESSED, IN WRITING, AN INTEREST IN THE

ACQUISITION.

1099 14th St., NW, Washington, DC (Incumbent)

1152 15th St., NW, Washington, DC (Lowest cost alternative)

1201 Eye St., NW, Washington, DC (Not technically qualified)

10. STATEMENT OF ACTIONS, IF ANY, THE AGENCY MAY TAKE TO REMOVE OR OVERCOME

ANY BARRIERS TO COMPETITION BEFORE ANY SUBSEQUENT ACQUISITION.

There are no systemic barriers to competition. If the agency has a continuing need for space upon lease expiration, MCC will follow all authorities, regulations, and policies applicable to lease acquisition. The current GSA LDG states that should there be remaining useful life in the Government’s tenant improvements, the Government will consider the cost of moving from the existing location, and the cost to build out new space when deciding whether to undergo a competitive action. Additionally, objective scrutiny will be given to the customer agency’s mission and security requirements (if applicable) to eliminate unnecessary agency space requirements that may be deemed unduly restrictive.

11. PREPARER’S TECHNICAL CERTIFICATION.

I certify that the supporting data used to form the basis of this Justification is complete and accurate to the best of my knowledge and belief.

___________________________________________________ Date______________________ Emmett Miller, Broker (Savills Inc.)

Certification of the Program Official

I certify that the supporting technical data, which form the rationale for this acquisition plan, is complete and accurate to the best of my knowledge and belief.

________________________________________________ Date________________ Tina Neumann, Managing Director, Administrative Services

12. CONTRACTING OFFICER CERTIFICATION.

By signature on this Justification for Other than Full and Open Competition, the MCC Lease Contracting Officer certifies that the award of a superseding lease of 83,105 RSF is in the Government’s best interest and that this Justification is accurate and complete to the best of the MCC Lease Contracting Officer’s knowledge and belief.

___________________________________________ Date_____________________ Maxwell B. Sarpong, Lease Contracting Officer

Concurred by:

Office of the General Counsel:

I certify that this acquisition plan is legally sufficient to the best of my knowledge and belief.

_____________________________________ Date_____________________ Cheryl S. Mpande, Office of General Counsel

Contracts and Grants Management Division Contracting Officer Certification (HCA):

I certify that this acquisition plan is accurate and complete to the best of my knowledge and belief.

_____________________________________ Date_____________________ Jonathan Hamlet, CGM Managing Director