PhillyDeals: Report: Postal Service should rebid contract

The U.S. Postal Service's inspector general recommends that the agency fire CBRE Inc., the largest U.S. commercial real estate broker, and rebid the company's four-year-old contract for renting new post offices and selling old ones.

Inspectors, writing last month, wrote that CBRE's practice of representing private-sector landlords and buyers, while also representing the Postal Service on the other side of the same deals, is "inherently risky" and creates "conflicts of interest."

The inspector general saw signs that the Postal Service could be ripped off for millions, through pricing manipulated to cover unapproved sales commissions, rapid rent increases, and uncompared appraisals. It asked investigators to review a few deals for "potential relationships between the buyer and CBRE."

One brokerage firm shouldn't represent both sides of a post office deal, the report concluded.

Can an agency in good conscience get the best price for both buyer and seller?

Isn't that like Enron-era accounting firms trying to be both auditors and tax advisers to the same corporations? Or mid-2000s Wall Street firms folding their shaky home loans into mortgage bonds for general investor consumption?

But both-sides-now is how commercial real estate often works, now that brokers have consolidated into a handful of big national players, CBRE spokesman Robert McGrath told me.

With the Postal Service, CBRE "followed the standard business practices explicitly defined in our contract."

CBRE saved the government many millions with better appraisals and some below-market rents, McGrath added.

Indeed, the Postal Service doesn't want to fire CBRE, spokeswoman Sue Brennan told me. While the inspector general's report contains thoughtful criticism of broker commission calculation and other arrangements, having one brokerage on both sides is compatible with "the industry standard method for broker compensation," Brennan said.

It shouldn't be, says American Postal Workers Union president Mark Dimondstein.

He called the report "a stinging indictment" of how the agency sold public property cheap, and "a condemnation of the cozy relationship" with CBRE.

Do private landlords see conflict? Jeanne Leonard, spokeswoman at Liberty Property Trust in Malvern, said sophisticated firms have the staff and expertise to review transactions carefully, even when employees of the same brokerage are at their elbow advising, and also across the table negotiating for the other side.

Indeed, much of the inspector general's report focused on the Postal Service's own failure to rigorously review its advisers' agreements and spot potential problems.

Maybe the lesson is that those who hope to buy or sell commercial properties these days need to become more like Liberty and other big property companies, and do extra due diligence. If they can afford it.