Facing a deficit of billions of dollars in recent years, the United States Postal Service (USPS) has floated a number of proposals to reduce that deficit, including selling off hundreds of post office properties in order to gain cash flow and reduce expenses. According to the Postal Service’s 2012 report to Congress, more than 600 buildings nationwide were “earmarked for disposal” at tjay to,e and the “USPS Properties for Sale” web site listed 40 buildings and land parcels for sale across the U.S.
In 2011, the CB Richard Ellis Group (now CBRE Group, Inc.), the world’s largest commercial real estate services firm, was awarded an exclusive contract to market USPS facilities which provides CBRE with a commission of 2 to 6 percent on the sale of those properties.
This award has been the subject of some controversy, as CBRE’s Chairman of the Board is Richard C. Blum, the husband of Senator Dianne Feinstein, who represents the state of California in the U.S. Senate:
It was recently learned that the United States has entered into a contract with one firm to sell 56 buildings that currently house U.S. Post Offices. The government has decided that it no longer needs these buildings (many of which are located on prime land in towns and cities across the country).
The sale of these properties will bring in billions of dollars and, with that, millions of dollars in commissions for the one Company that is in charge of handling the sale and negotiation of the new leases.
What makes this such a matter of concern is that the company that the Government has contracted with to conduct the sales (and the corresponding leases for the new locations of the displaced post offices) is owned by Richard Blum.
Does that name mean anything to you? Maybe it should re-phrased and say that the person who owns the company that is solely in charge of this multi-million-dollar transaction is Richard Blum the husband of Senator Dianne Feinstein.
It isn’t accurate to say Richard Blum is “solely in charge” of CBRE or he “owns” the company, as CBRE is headed by President and Chief Executive Officer Robert E. Sulentic and is a public company whose shares are owned by many different individuals and institutional stockholders. However, it is indeed true that Richard Blum is both CBRE’s chairman and the husband of a U.S. senator, and Blum Capital, a private equity firm founded by Richard Blum, is one of CBRE’s larger institutional stockholders.
However, Senator Feinstein holds no position in the Congress that provides her with any particular control or authority over the U.S. Postal Service (such as sitting on the Senate Committee on Homeland Security and Governmental Affairs, which has jurisdiction over the Postal Service).
Postal Service spokeswoman Sue Brennan said that seven different firms participated in competitive bidding for the USPS contract, and CBRE Group was chosen because it “was the contractor with the best overall organization, capability and experience.”
Writing in the San Francisco Chronicle, columnist Andrew S. Ross quoted a representative of Senator Feinstein as asserting she was not involved in her husband’s business dealings, and the contract between the USPS and CBRE was not initiated or influenced by Congress:
As for accusations of a conflict of interest and suspicions that Feinstein may have influenced the awarding of the contract to her husband’s firm, Feinstein’s office strongly denies the charges.
“Sen. Feinstein 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. Sen. Feinstein’s assets are held in a blind trust. That arrangement has been in place since before she came to the Senate in 1992,” said Brian Weiss, Feinstein’s communications director.
In 2012, Feinstein voted for an amendment to a postal reform bill that would have temporarily halted post office closings. The amendment was defeated in the House.
Both the Postal Service and CBRE insisted the 2011 contract was competitively bid. The Postal Service is an independent agency that reports to Congress, but there is no indication Congress plays any role in the awarding of contracts.
While CBRE handles the transactions, it does not advise the Postal Service which facilities to put on the market, I was told by both sides.
In June 2013 the USPS’ Office of Inspector General issued an audit report which noted “outsourcing real estate management services to one supplier is a fundamental change from how the Postal Service previously managed its real estate portfolio” and was critical of several aspects of the contract between USPS and CBRE, but Richard Blum’s marital relationship with Senator Feinstein was not among the conflict of interest issues cited in that report:
Specifically, there are conflict of interest concerns and no maximum contract value. In addition, the contracting officer did not properly approve contract payments, appoint contracting officer’s representatives to monitor contract performance, or ensure services were provided. As a result, it is difficult for the Postal Service to determine whether the outsourcing effort has been or will be effective in reducing costs.
Conflict of interest concerns exist because the contractor provides a range of property values to negotiate a lease and receives a commission from the lessor based on the property value negotiated. Further, the contractor acts on behalf of the Postal Service in negotiating leases and the contractor can also represent the lessor. The Postal Service established a targeted incentive for reduced lease rates but in the first year of the contract did not meet the target. In addition, Facilities officials did not establish a maximum contract amount, which poses the risk of escalating contract costs. Officials increased contract funding from $2 million to $6 million and, as of February 2013, contract payments exceeded $3 million.
Lastly, in fiscal year 2012, employees not appointed contracting officer’s representatives certified $1.7 million for invoices, including $1.1 million for services requested and certified by the same individual, which presents an increased risk of fraud. Ineffective contract oversight poses an increased risk to the Postal Service’s finances, brand, and reputation.
Journalist Peter Byrne expanded his previous news writings on this subject into a full-length book dedicated to the relationship between Richard Blum, CBRE, and the USPS in which he charged Blum and CBRE with various misdealings and mismanagement in brokering the sales of USPS properties, but he offered no proof Blum and CBRE had obtained or kept their contract with the USPS due to the influence of Senator Feinstein.