In its April 22, 2015 report on the Postal Service’s management of CBRE real estate transactions, the USPS Office of Inspector General (OIG) recommended the Postal Service “terminate and recompete” the CBRE contract.
The report is fourth in a series evaluating the Postal Service’s management over the global real estate firm. Two of the OIG reports addressed the USPS-CBRE contract. The third report focused on USPS historic postal properties. This report evaluates the Postal Service’s management of CBRE’s real estate transactions.
According to the OIG, many of the CBRE practices are increasing costs for the Postal Service.
High points of the OIG Report:
• USPS-CBRE signed a contract in June 2011, making CBRE the only provider of real estate management services for the Postal Service. These services include marketing and sale of postal properties and negotiating leases. Previously, lessors negotiated directly with USPS.
• CBRE collected commissions from landlords on 3,405 of 4,718 leases CBRE renegotiated during the period from October 2012 to September 2016. The OIG found CBRE renegotiated 57 of those 4,718 leases at a rate increase of more than 200% of the previous lease rates. According to the OIG, the USPS could be overpaying an estimated $9.5 million per year for leases already negotiated by CBRE.
• The OIG reviewed 21 property sales and found 14 of the 21 to be problematic. All 21 properties met the sales goal of 90% or more of their appraised value. However, CBRE solicited the appraisals, failed to keep accurate records and often sold properties to CBRE’s own clients. OIG referred certain of the transactions for further review by its Office of Investigation. Those referrals were for cases in which there was a possible relationship between CBRE and the buyers.
• In seven of the 21 property sale transactions the OIG reviewed, the appraisals had questionable financial analyses and comparisons to other properties. The OIG found that the improprieties in such appraisals could have affected the credibility and reasonableness of the estimated market values they contained. USPS employees did not detect the inconsistencies in the appraisals. Moreover, USPS employees did not complete required checklists for six of the seven properties. They instead relied on contractors for such reviews.
• The OIG recommended better employee training and oversight of real estate transactions. Without proper oversight, USPS is at higher risk of errors in the valuation of marketed and leased postal properties. The OIG found that the USPS had not fully implemented a previous OIG recommendation for the appointment of a contracting officer’s representative (COR) to monitor contract performance and approve payments to CBRE. The OIG asserted that failure to implement the recommendation could result in lack of transparency, unauthorized expenditures and changes to the contract.
• According to the OIG, when USPS permits CBRE to charge lessors for commissions, it creates a conflict of interest. Because CBRE receives such commissions from lessors rather than the USPS, CBRE finds itself in a “dual agency” situation in which CBRE represents the USPS in its efforts to keep lease rents low, but CBRE also has a financial interest in maximizing its commissions through high lease rates. Supporting the OIG’s concerns in this regard, lessors told OIG that CBRE gave indications that landlords could recoup commissions paid to CBRE by increasing rents. While such a result should not be surprising, it does illustrate that having CBRE seek to collect commissions from lessors will ultimately cause increases in the rents paid by USPS.
• In addition, the OIG report claims that CBRE acts improperly toward lessors. In negotiations, CBRE agents frequently imply that a commission paid by the lessor is mandatory, often also hinting that, in absence of the payment of such a commission, CBRE would suggest to the USPS that it should discontinue the lease and seek another building. However, the payment of commissions by lessors is never mandatory, whether under the USPS-CBRE contract or otherwise. Claiming otherwise in lease negotiations is improper.
• The OIG recommended USPS terminate and recompete the CBRE contract. In the interim, the OIG said USPS should (1) modify the contract to prohibit CBRE from collecting lessor commissions, and (2) notify lessors that commissions are not mandatory in USPS lease transactions.The OIG also recommended that the Postal Service prohibit dual agency representation by CBRE. That is, if CBRE is to receive commissions in lease transactions, CBRE should be paid by USPS. The OIG also recommended ways for USPS to improve its review of appraisals, records management and implementing policy.
• Although lessors are not required to pay a commission to CBRE, the USPS accepts when lessors agree to pay a commission, that commission can be recouped through rent payments. In its response to the OIG, the USPS said, “Management further stated that lessors, following standard real estate industry practices, can include such commission in the rent charged to the Postal Service over the lease term.”
• A written response from the USPS is included in the final OIG report. The response states, “The Postal Service generally agrees with the report’s findings and will adopt nearly all of the OIG’s recommendations.” However, in its response, the USPS said it does not plan to (i) terminate the CBRE contract or (ii) stop CBRE from collecting commissions from landlords.
- As part of its response to the OIG’s recommendation on improving the appraisal process, the USPS has said it will create a new appraisal administrator position to insure reliability of appraisals for leases.
Click on the article below to read more about the OIG report
OIG Audit Report: Postal Service Management of CBRE Real Estate Transactions
Government Says Company Part-Owned by Feinstein’s Husband Abuses Post Office Contract.
OIG Recommends Terminating the USPS-CBRE Contract and Refers Cases for Criminal Investigation
APWU on OIG report of CBRE: “We need to protect the USPS from corporate pirates”
GPO’s Real Estate Firm Disputes Criticisms
Postal Service Defends Sale, Rental Deals