Watchdog criticizes Postal Service for lack of ‘arm’s length’ real estate deals

February 20, 2014

Washington Post: "The U.S. Postal Service is putting itself at financial risk by allowing an outside real estate firm to negotiate sales and leases of postal property on behalf of the mail agency and prospective buyers and renters at the same time, a watchdog warned Wednesday.

"The practice, called “dual agency representation,” has the potential to create conflicts of interest for CB Richard Ellis, with the result that the real estate company might not maximize revenue for the financially ailing Postal Service.

“CBRE conflicts of interest could lead to financial loss to the Postal Service and decrease public trust in the Postal Service’s brand,” the Postal Service Inspector General’s office said Wednesday in a “management alert” that strongly recommends that the arrangement be scrapped."   Read more.


Brands at risk: The OIG looks at the USPS-CBRE contract

June 23, 2013

The USPS Office of Inspector General has just issued an audit report about the Postal Service’s contract with CB Richard Ellis.  CBRE became the Postal Service's exclusive real estate agent in June 2011.  Considering that the Postal Service leases 24,000 properties and owns 9,000, that's a big portfolio to manage, and outsourcing to CBRE was a big step.  

The OIG's report, “Contracting of Real Estate Management Services,” identifies three areas of concern in the relationship with CBRE: conflicts of interest, no maximum contract value, and a lack of oversight.  “As a result,” writes the OIG, “it is difficult for the Postal Service to determine whether the outsourcing effort has been or will be effective in reducing costs.” And it's not just about costs.  “Ineffective contract oversight," says the OIG, "poses an increased risk to the Postal Service’s finances, brand, and reputation.”

(The OIG also issued a report recommending that the Postal Service stop contracting work to Accenture, an information technology and consulting firm that's one of the Postal Service's largest contractors, because of the risk of fraud.  More on that another day.)

The Postal Service’s contract with CBRE has become the subject of considerable controversy.  Postal lessors — the people who own the 24,000 properties housing post offices — have complained about various aspects of the new arrangement, including the commission they must pay CBRE when leases are renewed.  CBRE is also the Postal Service’s real estate agent for the sale of postal facilities, so it’s been targeted by critics for its role in the sale of historic post office buildings.  The fact that the Chairman of CBRE’s Board of Directors is Richard Blum, husband of California Senator Dianne Feinstein, has fueled the controversy.

The OIG report is fairly critical of the USPS-CBRE contract, but the Postal Service and CBRE get off easy.  The OIG doesn’t get into the lessors’ complaints, the sale of historic post offices, or the Blum-Feinstein connection.  The report could have been a lot worse.  Here’s a summary of what’s in it — and what’s not.


The wrong incentive

The OIG identifies two aspects to the conflict-of-interest issue.  The first is the fact that CBRE gets a commission when it negotiates a lease renewal on behalf of the Postal Service.  The commission is a percentage of the amount of the lease, so CBRE has an incentive to negotiate a higher rent — good for the lessor, bad for the Postal Service. 

Because of the Postal Service’s financial situation and the changing landscape in the commercial real estate market over the past few years, the Postal Service has been pushing for lower rents.  The OIG notes that the Postal Service established a target for reduced lease rates, but in the first year of the contract CBRE did not meet the target.  The implication is that CBRE had little incentive to meet the target because it benefited by higher rents.

It’s hard to know what to make of this criticism.  The lessors have been complaining that the Postal Service has been pushing too hard for lower rents when negotiating lease renewals.  Sometimes the Postal Service wants a reduction of 20 or 30 percent or even more, and there are often other demands, like an early termination clause or making the lessor responsible for maintenance costs or building improvements that the Postal Service had previously paid for. 

In response to a draft of the OIG report, Mr. Tom Samra, USPS Vice President of Facilities, explains that there’s nothing to this conflict-of-interest criticism.  CBRE provides the market data used to determine the value of the rental property, and Postal Service real estate specialists review the data.

The OIG’s point is still valid, and one wonders why the Postal Service thought it was a good idea to turn lease negotiations over to an outside contractor who benefits from having the Postal Service pay higher rents.  Mr. Samra’s letter does not respond directly to this concern.


What are the USPS and CBRE up to? The case of the historic structure report on the Berkeley Post Office

March 10, 2013

The fire sale of the country’s post offices seems to be picking up speed.  Yesterday the Postal Service confirmed that it was in contract with a buyer for the 1858 post office in Georgetown, a historic neighborhood in Washington, DC. 

The sale of the New Deal post office in the Bronx, New York, also appears to be moving forward with alacrity.  The announcement of a possible sale came at the end of January, and already the public comment period has closed.  There are rumors a buyer is waiting in the wings. 

According to the USPS-CBRE Properties for Sale website, many sales are nearly completed.  The 1916 post office in Stamford, Connecticut, the 1934 post office in Saint Paul, Minnesota, the 1940 post office in York, Pennsylvania, and the 1941 post office in Flemington, New Jersey, are all “in contract.”  Two others — the 1934 post office in Somerville, Massachusetts and the 1935 post office in Villa Park, Illinois, are described as “negotiating.  The 1936 post office in Plymouth, Michigan has apparently been sold as well.

The process is also moving ahead to sell the 1914 post office in Berkeley, California.  Recognizing the national scope of the sell-off, Berkeley Mayor Tom Bates has written to 54 mayors across the country asking for their help in fighting what he calls "the privatization of our publicly funded buildings."  

Transparency problems are a big issue in these sales.  In last week's New York Times' article about the sell-off, Chris Morris, a senior field officer for the National Trust and project manager for post office buildings, told the Times, “Our biggest concern is the way they’re going about it isn’t transparent....  A lot of us are very confused about the process.”

There's no indication, for example, that a public bidding process is taking place.  When the Postal Service sells a post office, the public only learns of the buyer’s identity and the sale price after the deal is done.  Everything takes place behind the scenes.  

Other federal agencies are much more transparent.  For instance, in 2011, when the General Services Administration sold the historic post office in Modesto, California, the bidding process was open to the public, and one could see the latest bid on the GSA auction site.  

It’s not even clear what role the Postal Service’s exclusive real estate broker, CBRE, plays in these transactions. In one news article about the Berkeley post office, the Postal Service and CBRE told the reporter that “when CBRE handles the transactions, it does not advise the Postal Service which facilities to put on the market.”  But another article says that CBRE does advise the Postal Service on “which properties should be sold.”  Dismissing any possible conflict of interest CBRE may have in performing its services, a USPS spokesperson said, “They’re just giving advice, it’s up to us if we want to take it.”

Berkeley city officials have also had difficulty getting information from the Postal Service about the sale.  When asked, for example, what the appraised value of the post office is, the Postal Service refused to divulge the information on the grounds that it was “proprietary.”  The city has been forced to file a request for relevant documents under the Freedom of Information Act (FOIA). 

A couple of weeks ago, the Postal Service responded to the FOIA request by sharing several documents with the city.  One of them raises some rather disturbing questions. 


Customer input welcome

According to federal regulations, when the Postal Service wants to "relocate" a post office — which is how the closure of these historic post offices is being characterized — it must hold a public meeting.  In early February, the Postal Service sent a letter to Berkeley customers informing them that a meeting would be held on February 28.  It begins by saying that the USPS is "proposing the relocation" of the Berkeley post office, and it proceeds to say, "Customer input on this proposed relocation is welcome."  

As reported in the Berkleyside, at the meeting Augustine Ruiz (a USPS communications specialist) and Diana Alvarado (a USPS real estate specialist) gave a presentation about the process that the Postal Service must go through before it comes to a final decision on the sale. 

The steps include: Inform city officials of the proposal, hold a public meeting, and open a comment period.  Then local USPS officials make a recommendation to executives in postal headquarters in D.C., and then they make a final decision.  The Postal Service then informs the community of its decision, and the community is given an opportunity to appeal.  At some point (exactly when is a matter of contention), the Postal Service must also go through the steps outlined in Section 106 of the National Environmental Policy Act (NEPA).

At the meeting, the Postal Service representatives explained that no final decision on the sale had yet been made, and Ms. Alvarado noted that in at least a couple of cases (Huntington Beach and Menlo Park), management decided not to go through with the sale after listening to public comments.

Despite these reassurances that the plan to sell the Berkeley post office is a "proposal," "customer input" is welcome, and no final decision has been made, it looks as though the sale may already be a done deal.  

Knife in the back: More tales of emergency suspensions

July 13, 2012

Tomorrow will be the last day for the Southboro Station post office in West Palm Beach, Florida.  The Postal Service is closing the office as an “emergency suspension” due to a “lease expiration.”

USPS Handbook PO-101 says the Postal Service has 90 days to find another location or to proceed with a formal discontinuance study, but according to the Palm  Beach Post, all indications are that the post office is “closing for good.”  It was hugs and farewells today at the post office, and a lot of unanswered questions.

Emergency suspensions were a topic of discussion earlier this week at a hearing of the Postal Regulatory Commission, where the Postal Service’s witness for POStPlan was being cross-examined.  The plan to cut hours at 13,000 post offices doesn’t really have much to do with suspensions — it’s supposed to be about keeping post offices open, not finding a way to close them — so it was rather strange hearing suspensions come up so often during the hearing.

But suspensions were apparently on the mind of PRC Chairman Ruth Goldway because she had just had a meeting with representatives of the Association of United States Postal Lessors (AUSPL).  The lessors wanted to express their displeasure with the contract the Postal Service signed last year with CB Richard Ellis to handle sales and leases (more on CBRE here).

Chairman Goldway said the lessors association told her that CBRE has been demanding a 20 to 30 percent rent reduction when a lease is renewed, plus an early termination clause that allows the Postal Service to cancel the lease with 30-days notice.  The lessors are particularly disturbed by demands that they pay a commission to CBRE upon renewing the lease, even though commissions are typically paid only when a real estate agent finds a new tenant  (webcast here, discussion at 3:20).

The AUSPL believes that in many cases, CBRE is not overly concerned if a lessor decides not to renew the lease under the conditions it insists on.  That provides an opportunity for the Postal Service to declare an emergency suspension.  It’s an easy way to close the post office — no need to worry about community surveys, town meetings, appeals to the PRC, and so on. 

At the PRC hearing, Chairman Goldway asked the Postal Service to address the issue of lease negotiations and suspensions in the context of POStPlan.  The Presiding Officer’s Information Request asks the Postal Service to describe its policies regarding lease negotiations and to explain what it plans to do to avoid suspensions when there are problems renegotiating leases at POStPlan post offices (POIR 5).


Emergency suspensions just keep on coming

The practice of using breakdowns in lease negotiations as the occasion for an emergency suspension has a long history.   In 1997, Congress became concerned about the suspension issue and asked the GAO to look into it.  The GAO report notes that from 1992 to 1997, there were 651 suspensions, almost half due to the termination of the post offices’ lease or rental agreement.  Only 31 of the 651 ever re-opened. 

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On Privatization

Good Reading on Postal Privatization

Also: Sarah Ryan's "Understanding Postal Privatization: Corporations, Unions, and the "Public Interest"


Privatization in the UK

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Organizing to Save Rural Post Offices

A Community Organizing Toolkit

Revised November 2012

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