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

February 20
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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.

(Eric Risberg/AP)
(Eric Risberg/AP)

To ensure that contract terms do not give too much financial control to either buyers or sellers,the inspector general urged postal officials to switch to arm’s length transactions, in which CB Richard Ellis represents only the agency, not potential buyers and sellers.

“We do not believe allowing the arrangement is in the Postal Service’s best interest,” Michael A. Magalski, the deputy assistant inspector general for support operations, wrote to postal officials.

“When representing the Postal Service, it is important for CBRE to be focused on maximizing revenue when negotiating sales and leases of Postal Service properties and reducing costs when negotiating leases of properties for the Postal Service to occupy,” Magalski wrote. “This focus is compromised when it is also representing the interests of the buyer, lessee, or lessor.”

Postal officials told the inspector general’s office that they do not plan to stop the practice of dual representation, arguing that it gives the agency wider exposure to potential buyers or renters and ensures healthy competition. Such arrangements also are allowed under CB Richard Ellis’ contract with the General Services Administration, postal officials said.

“The Postal Service appreciates the time and effort that the [Office of the Inspector General]  invested in preparing the Management Alert, however, it does not agree with the OIG in this instance,” Sue Brennan, a Postal Service spokeswoman, said in a statement. Postal officials believe that “following their recommendation is not in the best interests of the Postal Service.”

She said the agency “has put in place reporting and consent requirements to minimize any risks associated with conflict of interest.”

But the inspector general said “no consensus exists as to the benefits associated with a dual agency arrangement.”

Wednesday’s report is the latest in a string of controversies involving the Postal Service’s contract with CB Richard Ellis,  a $7 billion Fortune 500 company the agency made its exclusive real estate agent in 2011. The Postal Service leases about 24,000 post offices and other properties and owns about 9,000 more.

The firm has been targeted by critics for its role in recent sales of historic post office buildings, which preservationists say have been sold at relatively low prices and without adequate public notice or effort to adhere to federal preservation guidelines.  The chairman of CB Richard Ellis’ board of directors is Richard Blum, who is married to Sen. Dianne Feinstein (D-Calif.), fueling the controversy.

Wednesday’s report does not mention historic building sales or the Blum-Feinstein relationship, but Inspector General David Williams is conducting a detailed audit of postal real estate transactions handled by CB Richard Ellis, “given the multiple roles CBRE plays for the Postal Service and within the real estate industry,” Wednesday’s report said.

Opponents of the historic post offices sales got nonbinding language in the recent federal budget that supports blocking further sales until the inspector general completes its probe of the agency’s process for transferring ownership of its buildings.

The contract with CB Richard Ellis requires the firm to notify postal officials of any actual or potential conflicts of interest within five days of a request for or ordering of contract work.
The company has submitted 10 “dual agency” disclosure letters detailing transactions in which it represented both the Postal Service and potential buyers or renters, the inspector general said. It represented both parties in three of those transactions before the contract with the Postal Service was changed in June 2012 to allow for dual representation.
Lisa Rein covers the federal workforce and issues that concern the management of government.
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