Business

Postal Service urged to end deal with real estate broker

by Bernie Becker - 05/03/15 7:30 AM ET

The Postal Service needs to end its relationship with a major commercial real estate broker, a federal watchdog said this week.

USPS’s inspector general said the agency’s set-up with CBRE, in which the real estate broker sometimes represents both sides of a lease or sale, sparks “conflicts of interest.”

Both the Postal Service and CBRE have defended their current arrangement. But the inspector general said it’s concerned that “CBRE may not negotiate property sales and lease transactions in the Postal Service’s best interest.”

{mosads}Before the Postal Service and CBRE teamed up, the inspector general said, potential landlords used to negotiate directly with the agency.

But now, the watchdog says it has heard complaints from building owners about CBRE demanding commission payments. In all, CBRE collected roughly $20.6 million in commissions on roughly 3,400 leases.

On top of that, the inspector general said that it believes the Postal Service – which lost some $5 billion in the most recent fiscal year – could be overpaying by about $9.5 million a year on rent due to leases negotiated by CBRE. Those overpayments, the inspector general said, went toward commissions for CBRE.

For those reasons and more, the inspector general said the Postal Service should get rid of CBRE and allow other companies to bid to be the agency’s broker.

But in separate statements, both USPS and CBRE shot back that the inspector general’s report missed the mark, suggesting the watchdog didn’t really understand how commercial real estate worked.

“The Postal Service believes strongly that it uses the industry standard method for broker compensation and that terminating the contract at this time is ill-advised,” said Sue Brennan, a spokeswoman for the agency.

The agency said it would start a review taking a look at the current commission process, to ensure that the payments given to CBRE are normal procedure.

A spokesman for CBRE added that landlords paying real estate brokers commission when the broker represents a tenant is merely standard practice.

CBRE added that it had gotten an extra $62 million in value for USPS through the sale of surplus real estate, and gotten thousands of lease renewals completed for the agency at no extra cost.

“Reforming and updating the USPS is a complex undertaking involving the competing objectives of a variety of special interest groups, few of whom have expertise in real estate practices and standards,” the CBRE spokesman said.

But the American Postal Workers Union, the largest representative of USPS workers, dubbed the inspector general’s report “a stinging indictment” of how the Postal Service does business.

Mark Dimondstein, the union’s president, said the report was a reminder that APWU and other interested parties shouldn’t let USPS sell off at times historic real estate, and should join the call for the agency to fire CBRE.

“This report shows we need to protect the USPS from corporate pirates who would plunder it,” Dimondstein said.

Tags Postal Service