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The county records allow for comparing the assessed value of the postal properties before they were sold to the final sales prices negotiated by CBRE on behalf of the Postal Service: And the comparisons reveal that CBRE has sold the bulk of this public real estate at prices under their assessed values — and apparently at far below fair market values.
When these findings were shared with Chuck Zlatkin, Legislative and Political Director of the New York Metro Area Postal Union, he said, "Shocking as this information is, it is not surprising because we have seen a pattern of corruption at the Post Office ever since the manufacture of the health care benefit prepayment crisis. It is certainly not permissible for CBRE to sell property paid for by the public to its own business partners, or to anyone else, at a discount. In my opinion, CBRE's conflicts of interest contain an element of fraud."
CBRE Group Inc. was given a list of the key facts and analysis reported in this investigation. Through its spokesman Philip Russo, the company declined to comment.
Conflicts of Interest
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.
Responding to a FOIA request through a staff attorney, Postmaster Patrick Donahoe categorically refused to disclose CBRE's appraisals. Attorney Jeff Meadows said that CBRE's appraisals do not need to be disclosed to the public because such information is "commercially sensitive" and it is comparable to a "national security" secret (even though the appraisals are not classified). The Postal Service eventually released the final sales price for each property sold by CBRE and CBRE's sales invoices, which recorded the amount of its commissions (2 to 6 percent). The appraisal figures, however, remain secret.
By way of explanation, an assessed value is normally based upon the most recent sales price of a parcel, which is likely to be less than its current fair market value. In many counties, the assessed value is calculated as a percentage of the fair market value. And during economic downturns, assessed values are often lowered to keep pace with a falling market.
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.
In other words, the most saleable postal properties were the ones most likely to command prices that exceeded their assessed values.
Not at Arm's Length
Real estate transactions are normally negotiated by agents who stay at "arm's length" from each other's interests. That makes sense because sellers try to obtain the highest price possible, while buyers angle for the lowest price. Each agent is bound to get the best possible price for his or her client in a competitive marketplace.
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