Fannie Mae DC Workplace Relocation

Pete Bakel
202-752-2034

Q. Why is Fannie Mae moving?
A. Fannie Mae currently occupies five owned and leased properties in Washington, D.C. The lease on one of the properties is coming to an end in 2018. This prompted the company to examine whether it should stay in its current facilities and renovate them to address key deficiencies, or move to new facilities.

Fannie Mae made the decision to move to new quarters in conjunction with FHFA. The decision was motivated by two compelling factors: first, the imperative to reduce taxpayer expense relative to the status quo; and second, the need to occupy space that can be quickly re-let to new tenants in the event that Fannie Mae is significantly restructured in the future.

Q. Where is Fannie Mae moving?
A. Fannie Mae executed a 15-year commercial lease for office space at 1100 15th Street. Fannie Mae chose 1100 15th Street for a number of reasons, including competitive pricing terms, ability to exit a lease early in the event Fannie Mae is significantly changed, access to public transportation for employees, space efficiency, and other relevant factors.

The company was deliberate in selecting a location and a development that would be attractive to potential subtenants, especially if commercial real estate market conditions were to deteriorate in the coming years.

Q. What are the terms of the lease?
A. Fannie Mae negotiated extraordinarily favorable and flexible lease terms with the property’s landlord. The company entered into a 15-year lease to avoid the higher upfront costs associated with shorter leases. At the same time, the company successfully negotiated extensive subleasing and assignment rights for the entire lease term.

Q. How much will this move save taxpayers?
A. On a 15-year net present value (“NPV”) basis, the project will save taxpayers more than $330 million. The taxpayer savings is based on a difference between $1.103 billion to stay in the company’s current facilities with necessary renovations and the estimated $770 million NPV of the new facilities.

While the cost of an ongoing construction project is inherently dynamic, the current NPV estimate is $759 million – an $11 million improvement over previous estimates, for a total projected NPV savings of $341 million. The company expects to meet or exceed the $770 million NPV target.

In addition, on every measure the company is shrinking its physical space. The company's relocation to 679,000 square feet at 1100 15th Street will phase out 991,000 inefficient square feet of space in the owned and leased properties the company presently occupies. The company will reduce the number of individual employee offices by 80 percent; will reduce the size of individual executive offices by more than 50 percent; and will dramatically improve productivity by consolidating our DC-based employee population, currently housed in five separate buildings, into a single location.

Q. Why have budgeted tenant improvement costs increased?
A. The budgeted tenant improvement costs have risen somewhat since the conceptual stage of the project, but these higher up-front costs were chosen in order to achieve even greater reductions in the operating cost of the space over the life of our occupancy. For instance, Fannie Mae selected LED lighting, which is more expensive initially than fluorescent lighting, because it is significantly cheaper to operate. Similarly, Fannie Mae selected mechanical shades and a DOAS mechanical system to reduce our heating and cooling costs. These decisions did result in a construction cost increase of slightly less than $45 million. These same decisions reduced the company's rent and operating expenses by an NPV amount of almost $50 million.

Q. Is this move appropriate for a company in conservatorship?
A. Fannie Mae's decision to sell its headquarters and two other properties and move into leased space furthers the interest of conservatorship. By selling three properties Fannie Mae owns in the District of Columbia, the company will be able to dispose of assets in a seller’s market.  At the same time, Fannie Mae was able to take advantage of significant softness in the DC commercial rental market.

The company's design plans are particularly appropriate for an entity in conservatorship. The number of employees housed in individual offices will drop by 80 percent in the new space; the square footage of the executive suite will be reduced by 32 percent; the total number of square feet across all facilities will fall by 25 percent; and the square feet per employee will decline by 34 percent.