The Postal Service has ended its contract with CBRE as the agency’s exclusive real estate provider.  A few months ago, the Postal Service awarded a contract to a new broker, Jones Lang LaSalle (JLL).

Los Angeles-based CBRE (aka CB Richard Ellis), the world’s largest commercial real estate firm, became the sole provider of real estate services for the Postal Service in 2011.  The contract, as indicated in the Notice of Award, was for four years, starting June 24, 2011, with two 2-year options to renew.  If both options had been exercised, the contract would have run to summer 2019. But in late 2016, a few months before the first option was set to expire, the Postal Service issued a solicitation for a new provider, and in the spring of 2017 it selected Chicago-based JLL.

The relationship between the Postal Service and JLL is not new.  For the past several years JLL has been overseeing the management of equipment and building maintenance for the Postal Service.  In November 2017, JLL was one of 12 companies out of almost 17,000 honored by the Postal Service for a Supplier Performance Award.

JLL’s new role as real estate provider includes negotiating leases on behalf of the Postal Service for properties rented from private landlords, brokering the sale of Postal Service properties, and helping to lease excess space in buildings owned by the Postal Service.

The switch from CBRE to JLL has happened rather quietly.  Neither the Postal Service nor JLL seems to have put out a press release, and there have been no media reports about the award.

But last summer the Postal Service began sending letters to lessors saying that they would be dealing with a new broker.  Then in August, the Association of U.S. Postal Lessors (AUSPL) posted a notice on its website informing its members that “this month JLL (Jones Lang LaSalle) takes over as the national contractor for USPS real estate services.”

There’s now a new page on the JLL website listing USPS properties for sale and lease. We’ve also confirmed via email with the Postal Service that JLL is taking over as its real estate provider, and we’ve also learned a few more details about the transition.  

 

The Postal Service explains

The Postal Service’s contract with CBRE was fraught with controversy.  The Postal Service’s Office of Inspector General issued several highly critical reports, and at one point the OIG recommended that the contract be terminated.

We put the question of why the Postal Service didn’t extend the CBRE contract into its final two-year option to David Partenheimer, Manager of Media Relations at the Postal Service.  We also asked if the OIG reports had anything to do with the decision.  He checked into the matter and came back with this information.

“Each contract USPS holds is evaluated as contract expiration dates approach in order to determine what course of action is in the best interests of the Postal Service with respect to such contract,” explained Partenheimer.   “In 2016, the Postal Service determined that it was in its best interest to resolicit for a real estate services provider.”

The solicitation was issued on December 12, 2016, and “following an evaluation of responses to the solicitation, the Postal Service awarded a contract for real estate services to JLL on April 21, 2017.”  (We haven’t been able to find the solicitation or award on FedBizOpps.gov, so no other details about the solicitation and award are available.)

CBRE will be completing transactions that were assigned to it before the contract ended, explained Partenheimer, but JLL will eventually become the broker on all lease negotiations (as indicated by the notice on the AUSPL website).

As for the sales of USPS properties, Partenheimer said that “as a part of the contract for real estate services, JLL will provide assistance with property sales.  JLL is not the exclusive provider of such assistance….  With respect to certain sales, CBRE is handling these because they predated the transition.”

Partenheimer had little more to offer about why the Postal Service chose to solicit a new real estate provider and whether the OIG’s recommendation had anything to do with it.

It’s not even certain that the decision to solicit for a new provider was made entirely by the Postal Service.  One lessor associated with the AUSPL suggested that CBRE may have wanted out of the contract because it felt that the commissions were too small, the process for modifying leases was burdensome, and just getting the Postal Service to sign leases could take months, even for the simplest of lease agreements.

[Update, Feb. 1, 2017: While Partenheimer seemed reluctant to acknowledge that JLL had become the “exclusive” real estate provider for the Postal Service and also indicated that CBRE was continuing to handle some leases and sales, there’s now a page on the JLL website that states this: “JLL is the transaction manager and exclusive broker for USPS’ 280 million-square-foot U.S. portfolio. We provide lease transactions, as well as disposition, acquisitions, outleasing and subleasing for USPS’ roughly 25,500 leased assets and 7,000 owned assets.”]

 

The transition

The first indication that JLL was getting involved with the Postal Service’s real estate operations occurred last summer, when the Postal Service began sending letters to some post office lessors informing them that it had “recently awarded a National Contract for Real Estate Services to Jones Lang LaSalle Americas, Inc. (JLL).  JLL has experience and expertise in real property transactions and will be providing real estate support services, including lease management and brokerage services. The contract with JLL became effective on April 21, 2017.” (One such letter is here.)

The letter goes on to state that “the Postal Service expects that you will pay a commission to the JLL representative for leasing services pursuant to a separate agreement between you and the JLL representative.”  Interestingly, the letter adds this: “The Postal Service expects that the JLL representative will be respectful and professional in representing the Postal Service’s interests and that you will work cooperatively with the JLL representative on the leasing transaction.”

As far as we can determine, the transition to JLL first showed up on the Internet in August 2017, when the AUSPL posted the notice on its website.

The next indication that JLL had entered the picture occurred in October 2017, when the brochure for the sale of the Richmond, Calif., post office indicated that the broker was JLL rather than CBRE.

There have been a couple of other signs that CBRE was winding things down. The CBRE-USPS Properties for Sale website is still active, but it’s down to a dozen properties — back in 2012, there were about a hundred listings at any given time — and none of the listings appear to have been added recently.  And sometime over the past few months, CBRE’s USPS Properties for Lease went offline completely (the last archived version is from June).

 

The new JLL USPS Properties for Sale website

So far, JLL’s new USPS properties website includes just a couple of properties for sale.  One of them is the historic post office in Richmond, Calif. — a sale that was strongly opposed by the city’s residents and elected officials, including Mayor Tom Butt and Congressman Mark DeSaulnier.  (There’s more about the Richmond story in these previous posts.)

The JLL website also lists 318 opportunities for leasing space in USPS properties.  Most of the buildings are currently operating post offices with extra space that’s apparently not being used and that can be made available for leasing.  These listings were posted just a few weeks ago, and the website doesn’t provide much in the way of details about the properties or, aside from the square footage, the nature of the available space.

We’ve done some research on the properties and found that more than 200 of them are historic post office buildings.  Perhaps the Postal Service has decided it’s better to lease the excess space in historic post offices rather than using excess space as a justification for selling off the building.

The sale of historic post offices became an issue back in 2011, when the Postal Service began a fire sale of landmark buildings. At one point, there were dozens of them listed for sale on the CBRE-USPS properties for sale website, and it looked like hundreds more were endangered.  The sales were criticized by historic preservations, local communities, and elected officials, and they were also the focus of articles in the New York Times, the Wall Street Journal, and other news media.

While the decision to sell off its historic properties ultimately belonged to the Postal Service, CBRE got caught up in the controversies.  And there were plenty of other problematic issues with the CBRE contract.

 

A brief history of the CBRE contract

Before 2011, USPS real estate specialists managed lease renewals, and various brokers around the country handled the sales of postal properties, but in 2011 the Postal Service awarded a contract to CBRE to serve as its exclusive real estate provider.  It was a big deal.  CBRE put out a press release, and various business news media reported the announcement.

CBRE was taking over lease negotiations on the 24,000 post offices that operate in leased properties, and it was also becoming the sole broker on the sales of postal properties. With 8,500 properties in the USPS portfolio, about a fourth of them historic buildings, the disposal initiative could have had significant impacts.

As explained in the Statement of Work in the solicitation for a real estate provider, one of the justifications for hiring CBRE in the first place was that the Postal Service was planning to increase revenues through an aggressive sell-off of excess property. In its 2012 annual report, the Postal Service stated that it had “reviewed over 4,000 facilities, resulting in the identification of over 600 buildings earmarked for disposal.”

The CBRE contract became controversial almost as soon as it began.  The postal lessors, who had previously negotiated directly with USPS real estate specialists, soon started complaining about the commissions they had to pay when renewing leases and the hard-ball tactics CBRE was using in negotiations, especially with respect to these commissions.

The AUSPL Board of Directors of the Association complained to the Postal Service, and there’s still a statement on its website saying, “The AUSPL Board of Directors has unanimously opposed the USPS practice of asking lessors to pay commissions to third party brokers from the inception of the original CBRE contract and our position is unchanged.”

Early on in the CBRE contract, the sale of historic post office buildings also became a source of controversy.  Dozens of communities across the country found themselves fighting the Postal Service’s decisions to relocate their post office from a landmark building to a smaller, nondescript, and often inconveniently located rented space.

By the summer of 2012, it had become apparent that a disproportionate number of the buildings earmarked for sale were located in California, in places like  Venice, Santa Monica, and Ukiah.  That was particularly galling to residents of the state because the CEO of CBRE, Richard Blum — a regent of the University of California and the husband of California Senator Dianne Feinstein — would be profiting from the sales.

The conflicts over the sales intensified in June 2012 when the Postal Service announced plans to sell the historic post office in Berkeley, Calif.  The Postal Service is currently in U.S. District Court battling the City of Berkeley over its rezoning of the downtown area where the post office resides.

That same month, the National Trust for Historic Preservation named the Historic Post Office Building to its annual list of the 11 most endangered places.

In February 2013, the historic Bronx General Post Office, home to some famous murals by Ben Shawn, was added to the chopping block, and the protests grew.

In June 2013, the USPS OIG issued its first management alert about problems with the CBRE contract.  The OIG expressed concerns about CBRE’s conflicts of interest, the Postal Service’s failure to establish a maximum contract amount, and ineffective contract oversight.

In September 2013, the sale of the historic post office Stamford, Conn., was challenged in federal court by the National Post Office Collaborate, a Bay Area group organized to fight the sale of historic postal properties, and the Center for Art and Mindfulness, an arts group based in Greenwich, Conn.

That same month, the sale of postal properties was criticized in Peter Byrne’s Going Postal: The husband of US Senator Dianne Feinstein has been selling post offices to his friends, cheap. Byrne provided a detailed analysis showing that CBRE was brokering sweetheart deals to sell USPS property to friends and clients at below market prices.

A few months after Byrne’s book came out, the USPS OIG issued a solicitation for a vendor to assess the fair market value of recently disposed Postal Service properties.  The contract would eventually be awarded to a company called Valbridge, based in Columbia, Maryland.

In February 2014, the OIG issued a second alert “to make the Postal Service aware of the need to further modify the CBRE contract.”  This alert also called attention to the potential for “CBRE conflicts of interest [that] could lead to financial loss to the Postal Service and decrease public trust in the Postal Service’s brand.”

In March 2014, the Advisory Council on Historic Preservation issued “Preserving Historic Post Offices: A Report to Congress,” a report criticizing the Postal Service for mismanaging its historic properties and not following the laws governing the sale of such properties.

In the following month, the USPS OIG issued another critical report on the Postal Service’s “Management and Disposal of Historic Properties,” its third report connected to Postal Service’s contract with CBRE.

In April 2015, just a couple of months before the original four-year contract with CBRE was to expire, the OIG came out with “Postal Service Management of CBRE Real Estate Transactions,” its fourth and final report about the contract. This one was much more comprehensive than the previous management alerts — and much more critical.

 

Terminate and recompete

Due to all the problems it had uncovered with leases and sales, the OIG recommended that the Postal Service “terminate and recompete” the CBRE contract.

In addition, the OIG referred 57 CBRE lease transactions to the OIG’s Office of Investigations for further review, presumably on suspicion of criminality.  The OIG also found potential relationships between the buyer and CBRE in five instances, and these cases were also referred to the Office of Investigations.  (We’ve heard no more about what happened with these investigations.)

In a letter appended to the OIG report, the USPS Vice President of Facilities, Tom Samra, challenged several of the IG’s findings, but he indicated that the Postal Service was in the process of engaging an independent consultant to evaluate the leasing program with CBRE.

Pending the results of that study, wrote Samra, “Management disagrees in the interim with the recommendation to terminate and re-compete the CBRE contract.”  As Samra explained, the Postal Service simply didn’t have the resources to handle all the negotiations that CBRE was doing.

In response, the OIG pointed out that it was leaving it to the Postal Service to determine what path to take after termination of the contract, including fixing the contract with CBRE, using Postal Service personnel to perform the functions of CBRE, or employing a new contractor or a group of contractors (the GSA model).  But the OIG was clear that “the current contract should be terminated … to ensure that future lease and sale negotiations are done with the Postal Service’s best interest in mind.”

In any case, given that the OIG report came out in April 2015 and it would soon be time to make a decision about executing the first option on the CBRE contract, there may not have been much opportunity to do anything else but renew the contract for another two years.

By December 2016, however, the Postal Service had apparently decided to solicit for a new real estate provider, and in April 2017, JLL received the contract award.

—Steve Hutkins

(Photo: Historic post office in Norwich, CT: New York Times)