May 6, 2015
Peter Byrne, author of Going Postal: U.S. Senator Dianne Feinstein's Husband Sells Post Offices to His Friends, Cheap, has a piece in the East Bay Express about the new OIG report about CBRE's contract to manage the Postal Service's real estate portfolio. Byrne's report on CBRE was probably the motivation for the OIG's investigation, so his new article is well worth reading. It starts like this:
Late last month, David C. Williams dropped a red-hot audit on Tom Samra, who runs the real estate arm of the US Postal Service in Washington, DC. As the inspector general of the Postal Service, William's mission is to "prevent and detect fraud, waste, and misconduct" inside the $65 billion agency. The April 22 audit report bluntly charges Samra and his staff with mishandling the Postal Service's contract with CBRE of Santa Monica, which is the world's biggest commercial real estate firm and is one of the nation's most politically influential. Based on findings that the CBRE has violated its financial obligations to the Postal Service, Williams is demanding that Samra "terminate and recompete the current CBRE real estate management services contract." Read more.
May 5, 2015
David Dayen: CBRE, a giant real estate company partially owned by Sen. Dianne Feinstein’s husband Richard Blum, is costing the U.S. Postal Service millions of dollars a year in lease overpayments, and its exclusive contract should be immediately canceled, the service’s Inspector General has found.
Eyebrows rose when the USPS made the contract with CBRE in June 2011 for all real estate transactions. Blum chaired CBRE at the time; he stepped down last year, but remains a director and a major shareholder. Feinstein, D-Calif., has always denied involvement in the deal, which proved lucrative as the cash-strapped Postal Service looked to its excess real estate to finance operations.
The contract enables CBRE to market and sell properties, and conduct negotiations for leases of postal buildings. Prior to the contract, USPS negotiated leases directly with landlords. Now, CBRE often represents both the Postal Service and the landlord in negotiations, known as “dual agency transactions.”
The Inspector General’s report described something akin to a shakedown, with a kickback thrown in. Read more.
April 30, 2105
The Postal Service’s Office of Inspector General has issued its fourth report criticizing the Postal Service’s oversight of the contract with its real estate broker, CBRE. It’s entitled “Postal Service Management of CBRE Real Estate Transactions.”
The OIG finds fault with both the leasing deals and the sales of postal property, and it recommends terminating the contract with CBRE. The OIG has also turned several cases over to the OIG’s Office of Investigations to determine if laws have been broken.
The possibility that illegalities occurred involves both the lease negotiations and sales. The OIG examined about 4,700 leases that had been negotiated by CBRE and found 57 where there was a huge rate increase — 200 percent or more than the previous lease rate. Considering that the average increase was about 8 percent, that looks suspicious.
The OIG also found many cases where the lessors said that CBRE was including commission fees in rents paid by the Postal Service, which is contrary to the contract, so this matter has also been referred to the Office of Investigations.
Finally, in the case of several property sales, the OIG found potential relationships between the buyer and CBRE. Those cases have been referred to the Office of Investigations as well.
Given these and many other problems in the arrangement with CBRE, the OIG has recommended that the Postal Service terminate the current contract with CBRE and “recompete” it, i.e., put it out for bid again with a new "request for proposals."
The OIG leaves it to the Postal Service to decide whether the new contract should be with CBRE, another contractor, or a group of contractors (the GSA’s model) — or if Postal Service personnel should do more of the work (as in years past). Whatever happens, says the OIG, “the idea of terminating the current contract is to ensure that future lease and sale negotiations are done with the Postal Service’s best interest in mind.”
The Postal Service has already rejected the idea of terminating the CBRE contract. In his letter responding to a draft of the OIG’s report, Mr. Tom Samra, USPS Vice President of Facilities, says that the Postal Service has hired a consultant to evaluate the leasing program with CBRE against industry best practices.
Pending review of the consultant’s report, Mr. Samra says that the Postal Service has insufficient personnel to manage all the lease renewals. Besides, Mr. Samra says he doesn't think CBRE is doing anything wrong.
The sales of postal properties came under scrutiny in 2013, when investigative journalist Peter Byrne published Going Postal: U.S. Senator Dianne Feinstein’s husband sells post offices to his friends, cheap. (Available on Amazon here.)
Byrne’s year-long research into over 50 sales (concluded from May 2010 to April 2013) indicated that about 80 percent of the properties had been sold below their assessed value, sometimes to CBRE’s clients and business partners.
The discovery was particularly troubling because the chairman of CBRE at the time was Richard Blum, the husband of California Senator Feinstein. (He’s still a major stockholder and remains on the Board of Directors.)
The OIG looked at 21 sale transactions, “judgmentally selected” from the 48 sales that were conducted by CBRE between January 2012 and September 2013. The OIG found problems with 14 of the 21 sales.
The period of the OIG’s study overlaps with the timeframe examined by Byrne, so the OIG and Byrne looked at many of the same sales, but the OIG report does not list which sales it reviewed, so it’s not possible to determine if the OIG included the more egregious examples that Byrne uncovered.
The OIG compared the sale prices with the appraised values obtained by CBRE, not the assessed value that Byrne used, so the two reports don’t examine the same data, but they come to many of the same conclusions.
Actually, Byrne had submitted a FOIA request to the Postal Service for the appraisals on the properties he was examining, but it was denied, so he spent months researching the 52 properties to determine their assessed value.
A word here on the terminology. The assessed value is the most recent sale price for a property, adjusted to reflect local market trends. The appraised value is an estimate of the fair market value of a property based on comparables, market trends, potential rental revenues, etc. Normally, property values go up, so the appraised value is usually higher than the assessed value.
That’s why when Byrne found that properties were being sold below assessed value, it was compelling evidence that they were being sold below their market value. Now it seems that there’s even more to the story: The appraisals are themselves a problem.
September 4, 2014
The New York Daily News is reporting that the Postal Service has sold the Bronx General Post Office to Youngwoo & Associates. Back in February, The Real Deal had reported that Youngwoo was proposing to use the site to build a marketplace in the vein of the company’s unsuccessful plan for the Kingsbridge Armory in the Bronx.
The founder and principal of Youngwoo & Associates (YWA) is Young Woo, a Korean immigrant with connections to the Korean-American community. According to the YWA website, Mr. Woo is an active philanthropist, a regular lecturer on real estate, and an alumnus and former trustee of the Pratt School of Architecture.
There's a good profile of Mr. Woo by Adam Piore in The Real Deal. Piore notes that Mr. Woo has gotten into some controversies, including a $100 million lawsuit filed against him by Robert De Niro’s Tribeca Film Festival and a legal battle with a South Korean bank with which he had partnered on a deal to buy a Wall Street building.
Such controversies may be par for the course in the world of New York City real estate, but the choice of Youngwoo as the winning bidder for the Bronx GPO raises yet more questions about how CBRE, the Postal Service's exclusive real estate broker, is going about the sales of post offices. One of the main allegations raised by investigative reporter Peter Byrne is that CBRE has been selling postal facilities to its own clients and to other businesses with which it has done deals, often at prices that were below market value.
According to Byrne’s Going Postal: U.S. Senator Dianne Feinstein's husband sells post offices to his friends, cheap, by selling postal facilities at low prices in this way, CBRE and its partners may be profiting at the expense of the Postal Service.
That’s a matter of particular concern because, at least until recently, the chairman of the board of CBRE was Richard Blum, Senator Feinstein’s husband. Blum stepped down as chairman in May, but he continues to be a major stockholder.
While the Bronx GPO was estimated to be worth $14 million, the Daily News doesn’t say what the sales price turned out to be, and the Postal Service has not made any formal announcement about the deal. Whatever the price, though, there’s no doubt that Youngwoo and CBRE have a prior relationship.
On the CBRE website, Youngwoo is listed as a client of CBRE Vice President Rima Soroka. The two companies have also done several deals together.
In 2009, in one of the biggest deals of the year, Youngwoo & Associates partnered with Kumho, a South Korean investment bank, to buy AIG’s NYC headquarters and the adjacent building, 70 Pine Street and 72 Wall Street. According to Crain’s, the properties represented a total of 1.4 million square feet of commercial space, worth about $140 million. CBRE brokers Darcy Stacom and William Shanahan represented AIG in the sale. That deal ended up in court when Youngwoo accused a former employee of seeking to oust the company as development manager for the site.
In 2010, an IT outsourcing company named Compucom leased 16,000 square feet of office space at the Southwest Corporate Center in Houston. Jon Lee of CB Richard Ellis represented Compucom in the transaction. Bonnie Kelley, also of CB Richard Ellis, represented the landlord, Woo Westwood, LP, an affiliate of Youngwoo & Associates.
In January 2012, the New York Post reported that Youngwoo, along with the San Francisco-based Bristol Group, selected CBRE (Stacom and Shanahan again) to market a 10-story, 240,000-square-foot property at 325 Hudson Street in New York City.
The Postal Service’s contract with CBRE has been the subject of several audit investigations by the USPS Office of Inspector General, concerning conflicts of interest, dual agency, and related issues. The OIG is currently working on an audit about whether or not the sales have sometimes been below market value, as documented in Byrne’s book. That audit may be out soon. (There’s more on these OIG’s audits in this previous post and this one.)
A related issue is that CBRE CEO Robert Sulentic also serves on the board of directors of Staples, where a pilot program has been underway to see if the Postal Service could cut costs by outsourcing retail services to big box stores.
It’s also of note that Youngwoo & Associates has lobbied several New York City elected officials, as indicated on the NYC.gov's Lobbyist Search site.
In a statement on his website, Congressman Jose Serrano, who has been fighting the sale of historic post offices, said the following: “The United States Postal Service has sold one of the Bronx’s most important community and historic treasures in a completely irresponsible manner — ignoring historic preservation law, without considering other options, and without properly consulting the community and listening to its concerns. The USPS has disregarded the voices of the Bronx community, elected officials, historic preservationists, and their own employees — all of whom opposed this process and this sale. Moreover, they have failed to formally announce the sale and provide details to the community.”
Over the coming days and weeks, we’ll be hearing more about the sale, Youngwoo’s plans for the building, and the Postal Service’s plans to relocate retail services. But unless the OIG looks into the matter, we’re not likely to hear much more about the new owner’s relationship with CBRE and how it may have helped shape the deal.
(Photo credit: Bronx GPO, Evan Kalish)