Inspector general questions Postal Service property sales, leases

Inspector general questions Postal Service property sales, leases
Opponents of the sale of Berkeley's 1914 post office at a planning commission meeting last October. The Postal Service inspector general has raised new questions about the service's property sales practices. (Leora Romney / Los Angeles Times)

SAN FRANCISCO — The independent watchdog for the U.S. Postal Service has raised new concerns about an exclusive contract with real estate giant CBRE Group Inc. to handle leases and sales of postal properties nationwide, saying the arrangement presents “potential financial risks.”

The office of inspector general has also sought an independent real estate firm to review all appraisals tied to transactions under the 2011 contract to ensure that they "were representative of the fair market value," a recent call for proposals states.


Robert McGrath, a CBRE spokesman, said in a statement that the company's actions are accepted industry practice and have been well-regulated under the contract.

"We are proud of our work in helping USPS to maximize the value of properties they deem to be surplus," he said.

The heightened scrutiny comes as communities across the country are vocally opposing sales of historic Postal Service buildings. In Berkeley, for example, the City Council late last month voted to pursue a zoning overlay that would muddy Postal Service plans to sell the 1914 downtown post office by restricting future uses of all civic center properties.

Meanwhile, a congressional appropriations bill last month recommended a halt to such sales until an investigation into the Postal Service's compliance with relocation requirements is complete.

The "management alert" issued by the office of inspector general last week follows its June 2013 audit of the CBRE contract, which pressed for improved oversight to address alleged conflict of interest concerns. In response, the Postal Service agreed to better monitor the contract and cap the amount CBRE could earn.

The recent alert says those actions did not go far enough.

"Because of the urgency and sensitivity associated with CBRE contract-control weaknesses, we are issuing this alert to make the Postal Service aware of the need to further modify the CBRE contract," wrote Michael A. Magalski, deputy assistant inspector general for support operations.

Key to auditors' concerns is a June 2012 contract change that allowed CBRE to negotiate on behalf of both the Postal Service and prospective buyers and lessors of USPS property, an industry practice known as "dual agency representation."

The inspector general alert, which recommends the contract be changed to end the practice, notes that CBRE conducted three such transactions before its contract allowed it to do so — one for a lease in Newhall -- and has since divulged 10 other such transactions.

Magalski acknowledged that dual agency representation is a legal business practice, but said "no consensus exists as to the benefits of it."

"We believe that dual agency arrangements give 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 outweigh the benefits," he wrote.

The letter also raised concerns regarding an arrangement, terminated by the Postal Service last May, under which CBRE was responsible for soliciting appraisals to determine the fair market value of the properties that it then sold and leased.

The Postal Service, Magalski said, "was subject to the risk that CBRE could manipulate transaction prices to favor its clients or business partners when it managed the appraisal and negotiation processes for properties the Postal Service sold or leased."

Since the Postal Service now handles appraisal subcontracting, Magalski said, he was not recommending contract changes in that area. However, in late December, the inspector general solicited proposals for an expert in fair market value to analyze all appraisals conducted since the start of CBRE's contract.


The proposals were due last month, an inspector general spokesman confirmed.

In a response to Magalski's letter, Tom A. Samra, U.S. Postal Service vice president of facilities, said management "appreciates the time and effort" of the inspector general but disagrees with its recommendations.

"By allowing dual agency arrangements, the Postal Service can obtain wider exposure to potential offerers, and thus ensure rigorous competition," he wrote, adding that "it does not appear that any actual conflicts of interest have been found."

CBRE, Samra noted, "is a highly regulated $7 billion Fortune 500 public company. It is unlikely that the firm would risk its reputation and economic resources by violating brokerage laws" regarding dual agency representation.

McGrath, the CBRE spokesman, said in a statement that it is "common practice in our industry for the selling broker, in this instance CBRE, to bring buyers to the table," that dual agency opportunities are "disclosed promptly to USPS in advance for their consideration and consent," and "stringent controls" are then put in place prohibiting and preventing sharing of confidential information between the teams.

He added that until last June, CBRE "coordinated the work of independent appraisers" but "has never self-performed appraisals" for the Postal Service.

"USPS properties have consistently been sold at or above the appraised value provided by USPS third party appraisers," McGrath said.