Inspector General Reviewing Postal Service Real Estate Deals

Thursday, 03 Apr 2014 04:55 PM

By Jennifer G. Hickey

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The U.S. Postal Service Inspector General is reviewing the agency's control of real estate transactions managed and negotiated by a firm whose board chairman, Richard Blum, is married to California Democratic Sen. Dianne Feinstein.

Agapi Doulaveris, chief of staff for the USPS Office of Inspector General, told Newsmax that the report from the ongoing audit is scheduled for release in June.

The real estate deals stem from USPS' efforts to achieve cost savings by selling historic post offices. The process has been mired in controversy, with questions of conflicts of interest and assertions that the USPS has been running afoul of legal requirements.

In January, Congress included a provision in an appropriations bill to "suspend the sale of any historic post office" until the Inspector General (IG) could complete an investigation into whether the USPS is following the requirements of the National Historic Preservation Act.

According to the USPS, there are 43 properties up for sale or lease nationally. Blum's commercial real estate firm CB Richard Ellis Inc. (CBRE) receives a commission of 2 percent to 6 percent on the sale of postal facilities.

In February, the IG released a management alert that presented potential financial risks associated with the USPS' contract with CBRE.

The problem began in 2012 when postal service officials amended a contract with CBRE to make the company its sole real estate agent. In its initial 2011 contract, CBRE represented only the "exclusive interests of the Postal Service."

The IG wrote in a 2013 report that it was "difficult for the Postal Service to determine whether the outsourcing effort has been or will be effective in reducing costs" and that as a consequence of "ineffective contract oversight," the CBRE contract "poses an increased risk to the Postal Service's finances, brand, and reputation."

The IG identified three primary areas of concern with the CBRE contract: conflicts of interest, no maximum contract value, and a lack of oversight.

The conflict of interest stemmed from the fact that CBRE acted as a "dual agent" in the transactions.

The "contractor acts on behalf of the Postal Service in negotiating leases and the contractor can also represent the lessor," the IG said.

Scott Amey, general counsel for the Project on Government Oversight, questions whether dual agency arrangements are truly in the best interest of either the USPS or the taxpayer.

"Most home buyers or sellers want their own advocate when they enter sale negotiations. You want an agent who provides sound advice and will get you the price that you want," Amey told Newsmax.

The IG did not review what role if any was played by Blum, whose wife is the powerful chairwoman of the Senate Intelligence Committee.

CBRE said "Richard Blum is a nonexecutive chairman and plays no role in the day-to-day management of CBRE and was not even aware of the contract at the time it was awarded. He has had no involvement with our work for USPS, and derives no direct financial benefit from the contract."

Blum's investment company, Blum Capital Partners, LP, is one of CBRE's largest institutional shareholders, with a $3 billion stake in the real estate company.

In a 2013 book, "Going Postal," investigative journalist Peter Byrne alleged that CBRE had sold 20 percent of its postal portfolio to its own clients or business partners.

Byrne also said Feinstein has acted on behalf of Blum in the past.

In 2007, the USPS was planning to build a mail-processing plant on a 26-acre plot in Aliso Viejo, Calif., but the city's mayor had concerns about noise and contacted Feinstein's office.

Feinstein wrote to the postmaster general and asked him to consider "alternative sites," mentioning a redevelopment project without disclosing the role her husband's company played in its $1.4 billion development.

A spokesman for Feinstein told The San Francisco Chronicle in 2013 that she "is not involved with and does not discuss any of her husband's business decisions with him. Her husband's holdings are his separate personal property. Senator Feinstein's assets are held in a blind trust."

Feinstein's office did not respond to questions from Newsmax.

Citing Byrne's book, consumer advocate and former presidential candidate Ralph Nader wrote Feinstein a letter in October 2013, stating that to "remove all doubt of impropriety, you should: introduce and champion a bill to immediately suspend all sales of postal properties throughout the country; and call for a close examination of the contract between CBRE and the USPS to sell postal properties."

The IG acknowledged in a 2014 audit that dual agency arrangements might be legal, but they are not in the Postal Service's "best interest" because CBRE should be "focused on maximizing revenue when negotiating sales and leases of Postal Service properties and reducing costs when negotiating leases."

That focus is "compromised when it is also representing the interests of the buyer, lessee, or lessor" and it gives "the appearance of non-arm's length transactions regardless of the controls the Postal Service has in place and the risks of allowing such transactions to outweigh the benefits."

In a statement released to Newsmax, a CBRE spokesman said the firm won the contract by "actively competing with other nationally prominent commercial real estate firms."

With regard to dual agency agreements, CBRE stated that "in any instance, where there is an opportunity for CBRE (through different sales teams) to represent both the seller and the buyer (a dual agency), that fact is disclosed promptly to USPS in advance for their consideration and consent. When consent is given, stringent controls are in place prohibiting and preventing sharing of confidential information between our USPS team and any team representing a potential buyer."

The spokesman added that all properties are "sold on an arm's-length basis after broad exposure to the market," and "purchase and sales terms" are subject to USPS approval.

The IG noted that CBRE submitted 10 dual agency disclosure letters detailing transactions in which it represented both the Postal Service and potential buyers or lessors, which may have "potentially violated the initial contract by representing both parties in three of these transactions before the contract was modified to allow for dual representation."

"We do not believe allowing the [current] arrangement is in the Postal Service's best interest," the IG concluded.

Tom Samra, USPS vice president of facilities, rejected recommendations to amend the CBRE contract, and insisted the dual agency representation would allow the Postal Service to "obtain wider exposure to potential offers, and thus ensure rigorous competition."

He also maintained that no "actual conflicts of interest have been found."

But Amey said "the USPS should be squeezing every penny it can from the market and a dual agency arrangement might not be in its, or the taxpayers', best interest. Let's hope the USPS has some knowledge of the market and isn't allowing a third party to abuse its authority or negatively impact government dealings."

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