To quote famed short seller David Einhorn: “No matter how bad you think it is, it’s worse.” On the “corruption among what passes for our elites” front, this story about self-dealing in the privatization of the Postal Service gives an indication of how bad things really are.
By way of backstory: the Postal Service is being plundered through the device of a completely fabricated financial crisis. The mail provider has been widely declared to be broke, but that’s utter hogwash. Congress has created the appearance of financial ill health via a 2006 measure which astonishingly makes it prepay retiree benefits 75 years in advance. Yes, you read that right. It has to fund benefits now for workers who haven’t even been hired. The Postal Service is the only agency subject to this absurd requirement. If that were eliminated, and the Post Office charged stopped pricing business mail (meaning all that junk you get) at a loss, the Postal Service would be profitable. The Save the Post Office site sets forth the forces behind the campaign to turn the Post Office into a looting opportunity public-private partnership, including Pitney Bowes, DHL, Federal Express, UPS, and USPS supplier Ursa Major.
EastBayExpress, via publishing a section from a new e-book by Peter Byrne called Going Postal (um, sadly the same as used by Mark Ames for his important book on workplace shootings), tells us how the husband of powerful Sen. Diane Feinstein, Richard Blum, is feeding at the Postal Service privatization trough. Blum is the chairman of C.B. Richard Ellis (CBRE) which has the exclusive contract to handle sales for the Post Office’s $85 billion of property. Bryne summarizes the finding of his investigation:
• CBRE appears to have repeatedly violated its contractual duty to sell postal properties at or above fair market values.
• CBRE has sold valuable postal properties to developers at prices that appear to have been steeply discounted from fair market values, resulting in the loss of tens of millions of dollars in public revenue.
• In a series of apparently non-arm’s-length transactions, CBRE negotiated the sale of postal properties all around the country to its own clients and business partners, including to one of its corporate owners, Goldman Sachs Group.
• CBRE has been paid commissions as high as 6 percent by the Postal Service for representing both the seller and the buyer in many of the negotiations, thereby raising serious questions as to whether CBRE was doing its best to obtain the highest price possible for the Postal Service.
• Sen. Feinstein has lobbied the Postmaster General on behalf of a redevelopment project in which her husband’s company was involved.
Mind you, Byrne isn’t the first to find serious improprieties. The contract looked sus from the get go:
In June 2013, Postal Service Inspector General David C. Williams published a scathing audit of CBRE’s exclusive contract to manage all the sales and leasing of postal real estate. Williams noted that outsourcing these activities to a single firm is “a fundamental change from how the Postal Service previously managed its real estate portfolio [and] Facilities officials should improve oversight to mitigate inherent risks associated with the CBRE contract …. Specifically, there are conflict of interest concerns.”
Williams warned of the potential for contract fraud, but he stopped short of referring the matter to a prosecutor, and advised the postal executives in charge of the CBRE contract to clean up their act.
It’s clear CBRE sold properties at bargain prices to favored parties, violating its contract with the Post Office:
In June 2011, the Postal Service hired CBRE as its exclusive agent to sell post offices, warehouses, parking lots, and vacant land worth hundreds of millions of dollars. The contract instructs CBRE to propose properties to sell with final approval reserved to the head of the Postal Service’s Facilities Division, Tom Samra. And it requires CBRE to sell them at or above appraised (fair market) values, or not at all.
CBRE is also charged with appraising the fair market value of these properties and listing a reasonable sales price. It is important to point out that real estate appraisals are not customarily performed by the agent marketing the property. To avoid conflicts of interest, property appraisals are normally performed by professionals not involved in negotiating the sale.
So you can see how this charade works: CBRE is tasked with selling properties at market value or higher. But who determines what market value is? CBRE. So the fox is officially running the henhouse.
Bryne filed a FOIA to try to obtain the appraisals. The Post Office refused, with the intelligence-insulting excuse that the appraisals were commercially sensitive and were comparable to national security secrets! Um, they are property specific and at a certain point in time, so their value after a sale is consummated is nil…except for audit purposes. But it appears that anything that might embarrass DiFi, who chairs the Senate Intelligence Committee, by definition is a national security issue.
But what is in the public record is plenty damning. CBRE was routinely selling property at below assessed value. For anyone familiar with real estate in the US, “assessed value” is the value used for real estate tax purposes and by convention, almost without exception is meaningfully below market value. Bryne recaps the record:
During the first two years of its contract, CBRE sold the 52 properties it had picked to market for millions of dollars less than their assessed values. For example, in Seattle, CBRE sold a post office building in 2011 for $8 million that was assessed at $16 million. And earlier this year, it sold a seventeen-story office building in St. Paul, Minnesota for $20 million under the 2009 value assessed for it shortly before it was put on the market by CBRE.
Details presented in the chapter “Following the Money” of this e-book show that from June 2011 through May 2013, CBRE sold 52 postal properties for $166 million. The total assessed value of this portfolio at the time of sale was $232 million. Subtracting out the nine properties that sold at a value higher than their assessed value, CBRE has arguably undersold its postal real estate portfolio by at least $79 million. And it undersold these properties even as the price of commercial real estate, especially for central downtown parcels, was approaching the pre-crash highs of 2007.
Interviews about standard real estate practices with two experts provided by the National Association of Realtors indicate that the sale of a property at or below assessed values most often occurs when it is located in a distressed or impoverished area. When there is shortage of commercial real estate in developable areas — which has been the general situation, nationwide, for several years — demand tends to push prices far higher than assessed values.
But the vast majority of the CBRE-negotiated sales did not involve distressed properties: They were mostly located in economically healthy neighborhoods. The sales were mostly of central downtown buildings, with parking, in wealthy or revitalizing neighborhoods that attracted restaurant, boutique, and residential developers, or modern, suburban office buildings and warehouses, also with ample parking that attracted high-tech industrial firms.
There’s more damning detail in the book extract. I strongly urge you to read it in full. This case shows how open our ruling classes have become in stealing from the public at large. And the worst is that even if this story were to get traction, it’s highly unlikely anyone has the guts to cut a super powerful couple like Blum and Feinstein down to size.