Fannie Mae Overspending on New Headquarters
Luke Osborne November 14, 2016
Article from Daniel Goldstein with Market Watch- http://www.marketwatch.com/story/fannie-maes-new-headquarters-deemed-too-lush-for-troubled-agency-2016-06-16
Fannie Mae might need to take its own advice: You shouldn’t buy more home than you can afford.
A June 9 inspector general’s report from the Federal Housing Finance Agency (FHFA), which controls operations through conservatorship of both mortgage giants Fannie Mae and Freddie Mac, released a scathing report on Fannie Mae’s FNMA, -1.95% plans for a new headquarters in downtown Washington, D.C., doubting that the plans for the so-called Midtown Center, which include spiral staircases, rooftop decks and three glass-enclosed walkways, “are appropriate for an agency in conservatorship.”
In the report, the agency’s inspector general, Laura Wertheimer, told FHFA that the cost to built the new 679,0000 square-foot Fannie Mae headquarters had risen since January of 2015 to $151 million up from $115 million. All told, the 15-year cost of relocation of Fannie Mae’s headquarters , the construction of the new building and the lease now tops $770 million, the OIG said. The OIG took particular aim at the three glass-enclosed bridges at the property, of which Fannie Mae will bear about 70% of the costs to construct, totaling about $15 million, as well as the spiral staircases and rooftop decks.
Pete Bakel, a spokesman for Fannie Mae, said that despite the rising construction costs identified in the OIG report, the move to Midtown Center will still save taxpayers about $330 million over the next 15 years as the agency consolidates its offices in the Washington area into the more energy-efficient space.
Bakel said the higher construction costs were in part due to the agency selecting more expensive energy-efficient elements such as LEDs instead of florescent lights as well as mechanical shades up front that it said would help lower costs during the 15-year lease. “It’s completely consistent with an agency that’s in conservatorship,” he said.
The glass enclosed walkways, he said, help employees get from one building to another without having to go outside. “It reduces wasted employee time,” he said.
Fannie Mae’s plans come as downtown Washington D.C. experiences a boom in commercial and high-end residential construction. Much of the drab, imposing Brutalist 1960’s era architecture which defined Washington’s commercial corridors for decades has been replaced or re-skinned with New York-style trophy structures of glass, steel and marble, akin to Fannie Mae’s office plans.
Washington itself is fast shedding its reputation as a sleepy government town. A $950 million 10-acre, five-square-block development, CityCenter D.C., also opened in 2014. It sports luxury retailers including Canali, Kate Spade New York, Hermes, Hugo Boss and Longchamp Paris, and 200 condos, most priced at over $1 million. Republican presidential nominee Donald Trump, while eyeing the White House at 1600 Pennsylvania Ave., also is building a 263-room luxury hotel in the Old Post Office building that will open in September.
Fannie Mae said in 2014 it would sell its iconic colonial headquarters building with lush grounds on Wisconsin Ave. as part of an effort to consolidate its 2,300 Washington staffers into one building.
The former brick headquarters, which is often illustrated by MarketWatch, The Wall Street Journal and other financial publications, itself was derided as “Versailles West” when it was purchased in the 1970s by President Richard Nixon’s appointee Oakley Hunter, a former Republican member of Congress and an FBI agent. “It’s what Versailles would have looked like if the French king had more money,” a HUD official is said to have noted dryly at the time.
Despite the rising costs and trophy-office amenities, FHFA however in January 2015 approved Fannie Mae’s lease at the Midtown Center building, which will sit on the former site of the Washington Post headquarters on 15th and L Street, just a few blocks from the White House.
The building’s owner, Washington, D.C.-based real estate investment trust Carr Properties, which will lease about 85% of the glass-enclosed office space to Fannie Mae, broke ground on the project last month, demolishing three buildings including the Post’s famous Brutalist and Watergate-era newsroom.
Designed by New York-based SHoP Architects, Carr’s Midtown Center will feature two full-height curtain wall office towers separated by an European-style public plaza. The building includes an 8,300 square-foot fitness center, and a 1,000 square-foot rooftop conference center described as having “stunning views of downtown Washington D.C.” The building is expected to be completed in June of 2018, Carr said. Carr Properties did not return a request for comment.
Fannie Mae has operated under federal government control, or a conservatorship, since September of 2008, and was given more than $116 billion in taxpayer bailout funding after mortgage – backed securities it sold and held during the real estate boom went bust.
“Excessive or unnecessary spending by Fannie Mae may be seen as monies that ought to have been swept to the U.S. Treasury as a dividend for the $116.1 billion investment by U.S. taxpayers,” the OIG said in its report.
Rep. Ed Royce, a Republican member of Congress from California, was more blunt. “It’s paradoxical that an organization overseeing a huge chunk of the mortgage market can’t get a simple construction project right,” he said.
Last year, GOP members also criticized their favorite bete-noire, the Consumer Financial Protection Bureau and its plans for a $216 million renovation of its 1700 G Street headquarters, though a Federal Reserve inspector general’s report called the price tag for the renovation “reasonable.”
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