Inspector general criticizes USPS relationship with real estate representative CBRE

February 20

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 this week.

The practice, called “dual agency representation,” has the potential to create conflicts of interest for CBRE, 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,” USPS Inspector General David C. Williams said Wednesday in a “management alert” that strongly recommends that the arrangement be scrapped.

The Postal Service and the firm have been targeted by critics for the selling off of historic post office buildings, at what preservationists say have been relatively low prices and without adequate public notice or effort to adhere to federal preservation guidelines.

The chairman of CBRE’s board of directors is Richard C. Blum, who is married to Sen. Dianne Feinstein (D-Calif.), a fact that has heightened scrutiny of the relationship between the Postal Service and the real estate firm. Wednesday’s report did not address the historic buildings or Blum.

In the report, the inspector general urged postal officials to switch to arm’s length transactions, in which CBRE would represent only the agency. The change, the report said, would ensure that contract terms do not give too much financial control to buyers or to sellers.

“We do not believe allowing the arrangement is in the Postal Service’s best interest,” Michael A. Magalski, 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 Magalski that they do not plan to stop the practice of dual representation, arguing that it gives them wider exposure to potential buyers or renters and ensures healthy competition. Such arrangements also are allowed under CBRE’s contract with the General Services Administration, postal officials said.

“The Postal Service appreciates the time and effort that the [Office of 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.”

In a statement, CBRE said the company “undertakes to maximize the value of each asset disposition” for the Postal Service, whose properties have “consistently” been sold at or above the appraised value provided by a third party.

“All properties are sold on an arm’s length basis after broad exposure to the market,” the company said.

Wednesday’s report is the latest in a string of controversies involving the Postal Service’s contract with CBRE, 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 company said that Blum, as its “non-executive” chairman, plays no role in day-to-day operations and was unaware of the contract with the Postal Service when it was awarded. His investment firm owns 41 / 2 percent of CBRE’s outstanding shares.

Feinstein’s office has said the senator does not discuss her husband’s business decisions with him — and that Congress has no role in choosing which companies do business with the Postal Service.

Williams is also conducting a detailed audit of postal real estate transactions handled by CBRE, “given the multiple roles CBRE plays for the Postal Service and within the real estate industry,” the report said.

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

The contract with CBRE 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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