(This post is from our new blog: Unofficial Sources.)
CBRE, a giant real estate company partially owned by Sen. Dianne Feinstein’s husband, Richard Blum, is costing the U.S. Postal Service millions of dollars a year in lease overpayments, and its exclusive contract should be immediately canceled, the service’s inspector general has found.
Eyebrows rose when the USPS made the contract with CBRE in June 2011 for all real estate transactions. Blum chaired CBRE at the time; he stepped down last year, but remains a director and a major shareholder. Feinstein, D-Calif., has always denied involvement in the deal, which proved lucrative as the cash-strapped Postal Service looked to its excess real estate to finance operations.
The contract enables CBRE to market and sell properties, and conduct negotiations for leases of postal buildings. Prior to the contract, USPS negotiated leases directly with landlords. Now, CBRE often represents both the Postal Service and the landlord in negotiations, known as “dual agency transactions.”
The inspector general’s report described something akin to a shakedown, with a kickback thrown in.
Landlords have complained about CBRE demanding commission payments for negotiating the leases, under threats to otherwise discontinue them. These payments are not mandatory under CBRE’s contract, yet the landlords allege CBRE makes them appear that way. The report states that since October 2012, CBRE has collected $20.6 million in commission payments on 3,400 leases.
CBRE also reportedly tells landlords that they can “recover” commissions through increasing rent on the properties. In that sense, the Postal Service effectively pays the commissions, with CBRE collecting higher payments as the rents grow.
Lease renewals brokered by CBRE have gone up by an average of $2,792 annually, three times the average $773 annual increase for leases renegotiated by the Postal Service. Some leases have grown over 200 percent upon renewal. This translates to a potential overpayment of $38 million over the last four years. The arrangement causes “the Postal Service to pay for CBRE to negotiate against the Postal Service,” says the report.
Both Postal Service management and CBRE maintain that nothing untoward is happening. “It is standard practice for landlords to pay a commission when a broker is negotiating on behalf of a tenant — that is the how a broker is compensated,” CBRE said in a statement. However, under the contract, the firm also receives money from USPS through meeting “performance targets” for lease renewals.
The Inspector General also expressed concern about CBRE property sales. The firm controls the appraisal process without input from the Postal Service, despite a requirement to review appraisals independently. Of the 21 property sales studied, the report identified problematic appraisals on one third of them, where the data underlying the appraisals was either speculative or flawed. One building in Richmond, Virginia, which CBRE sold for $1.4 million, re-sold for $2.4 million just four months later. In one out of every four sales examined, CBRE had an existing business relationship with the property buyer. That dovetails with independent news investigations of CBRE’s sale practices.
Postal Service management disagreed with the inspector general’s recommendation to terminate the contract, or even to inform landlords that they are not required to pay CBRE commissions. They did agree to hire an independent consultant to evaluate the leasing program. They also defended CBRE’s work, saying that leases were mostly negotiated at or below market rates.
The American Postal Workers Union, currently embroiled in contract negotiations with USPS, criticized “the cozy relationship between postal management and the world’s biggest real estate company.” They also pointed out that CBRE CEO Robert Sulentic sits on the board of directors of Staples, which postal workers have boycotted for years over a public-private partnership with USPS to sell postal products at their stores. The Staples deal coincided with USPS personnel cuts and sell-offs of post offices, which are managed by CBRE.
APWU President Mark Dimondstein added in a statement, “We need to protect the USPS from corporate pirates who would plunder it.”
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