SEC Terminates Deal To Build A New Headquarters In NoMa

The deal to build a new headquarters for the Securities and Exchange Commission is dead.

The General Services Administration announced Tuesday it has terminated a lease agreement with Cayre Jemal’s Nick LLC, a joint venture between Douglas Development Corp. and Midtown Equities, for a new 1.2M SF headquarters planned in D.C.’s NoMa neighborhood. 

It cited the developer's inability to secure financing as the reason for the termination.

“Despite multiple attempts by GSA to find a mutually beneficial solution since the Spring of 2023, CJN has been unable to demonstrate its ability to finance construction of the building, as required by the lease, and the project has yet to proceed past the initial phase,” a GSA spokesperson said in a statement. “Because of this, GSA has determined that it is in the best interest of the Government to terminate the contract and it did so today.” 

Through a spokesperson, CJN, the Douglas-Midtown joint venture, said it is “very disappointed” by the GSA’s decision and intends to file an appeal for judicial review.

“While CJN’s review of the decision continues, CJN believes the decision is both factually and legally flawed, and does not serve the best interests of the taxpayer or the Government (including both GSA and the SEC),” the spokesperson wrote in a statement. 

The GSA awarded Douglas and Midtown the lease in September 2021, one of the largest federal government contracts in recent history, valued at nearly $1.4B. 

The plan was to build a 1.2M SF complex on a 6-acre site at 60 New York Ave. NE as a permanent home for the financial regulator, which would relocate from leased space near Union Station. The award said 4,500 employees would move to the planned facility two blocks from the NoMa-Gallaudet Metro station. 

When the GSA sent out its solicitation in 2018, a move-in was projected for 2023. But by the time the award was announced, the SEC told its employees that they would be relocating in 2025 “at the earliest.” 

On that timeline, construction was set to start in June 2022, a milestone that came and went with no updates. Bisnow reported in the summer of 2023 that the developer had still not secured the financing it needed to start construction, and the deal was in jeopardy. 

Last October, the agency signed a five-year extension at its current headquarters, Station Place. The deal reduced its footprint at the office complex along F Street NE by more than 210K SF — less space than it had agreed to occupy at 60 New York Ave. — an acknowledgment that the headquarters move was further delayed.

The GSA, the agency that manages the federal government's owned and leased real estate, “remains committed to finding a cost effective housing solution for the SEC to support the vital mission it performs for the American people,” its spokesperson said Tuesday.

Douglas and Midtown’s proposal was one of three that the GSA received after soliciting a request for proposals in July 2018. The SEC’s landlord at Station Place, Property Group Partners, submitted a proposal to keep the agency in place, and Redbrick LMD submitted a third for its Poplar Point site along the Anacostia River in Ward 8.

The search was contested from the beginning, when Property Group Partners protested an option to buy clause in the request for proposals. It then protested the selection of Douglas and Midtown shortly after the award was announced, arguing the partnership had not met the deadline to acquire financing. 

The final protest was knocked down in September 2022, a year after the award, seeming to pave the way for Douglas and Midtown to begin construction. The development team hired Walker & Dunlop to help it find a construction lender, seeking a $694.9M, nonrecourse, floating-rate loan with an 85% loan-to-cost ratio, according to an offering memorandum from late 2022 obtained by Bisnow.

When the developers were awarded the project in 2021, the Federal Reserve's benchmark interest rates were near zero. But by the time PGP's protest was thrown out, rates had risen to roughly 2.5% and kept going up as Douglas and Midtown were in the market for debt to kickstart the project.

The lease falling through means wasted time and money for the development partnership and possibly for taxpayers if the GSA needs to start a new search. Hundreds of permitting documents were filed with the city’s Department of Buildings in March of last year, Bisnow found, but have been sitting “under review.”

The site, at the busy intersection of North Capitol Street and New York Avenue, has been used as a parking lot and a staging ground for construction equipment with the hope they would be used on a gleaming new office building. 

UPDATE, OCT. 2, 12:05 P.M. ET: This story has been updated with a statement from the CJN joint venture.