Case Study
State Services Organization

Background

State Services Organization (SSO) is a 501(c)(3) joint venture formed in 1976 by The National Governors Association (NGA), the National Conference of State Legislatures (NCSL), and The Council of State Governments (CSG) to provide high quality, well-located and competitively priced office space to its members. In essence, SSO re-leases small office space to state organizations that need a Washington, D.C. presence.

SSO had occupied space at 400-444 North Capitol Street, NW since the building opened in 1976.

Challenge

The SSO project had four inherent challenges. The first challenge was adhering to inelastic pricing parameters. Since SSO's business model only worked if its total costs were the same or less than the cost of directly avaliable space in the building, their rent needed to be $8 per square foot below market rate. Secondly, it was difficult aligning the interests of SSO's stakeholders, which was required for any new lease. Third, the organization was limited to office space in the Capitol Hill area. Finally, SSO's landlord did not believe they would leave their current space and thought their current rent was already below market. 

Solution

West, Lane & Schlager (WLS) identified a four-part solution. To start, although negotiations reached an impasse due to widely differing views on the building’s value, WLS determined the net effective rents needed to be $35.00 - $44.00 per square foot, while the landlord offered a $46.50 per square foot net effective rent. Next, WLS identified a credible alternative in 500 E Street, a higher quality, lower cost option, which the Comptroller of the Currency had just vacated. This was concurrent to WLS quantifying the landlord’s risk and sunk cost if SSO vacated, which was approximately $35 - $40 million. And finally, after nine months of negotiations, SSO and the landlord reached final terms at $39.50 per square foot (net effective rent).

 Along with cost and location, State Services Organization had a third, crucial component: an active board which had approval responsibility. West, Lane & Schlager not only negotiated great financial terms that reduced our costs by over 20% two years before our lease expiration date, they also proved how the transaction would benefit each board member. For organizations with a complex internal decision making process, West, Lane & Schlager’s expertise is unmatched. 

Steven Roberts

Results

The project was a success across multiple fronts. When terms were met, SSO's final rent was $10.00 per square foot below market rent. Today, the organization's rent is over $12.00 per square foot below market rent. In addition, during the project WLS held quarterly meetings with SSO's board and tenants so that all constituencies were up-to-date on the process. As a result, the lease was approved and all SSO tenants renewed their leases. Finally, SSO reduced its annual costs by more than $2.3 million. 

Key Contacts