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Privatization Nightmare: Sen. Dianne Feinstein's Husband Selling Post Offices to His Friends, Cheap

An investigative journalist conducts a year-long study of power, corruption, and public assets for sale.

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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 (2-6 percent). The appraisal figures remain a state secret.

An assessed value is normally based upon the most previous sales price of a parcel, which is most 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. During economic downturns, assessed values in most counties are lowered to keep pace with a falling market.

During the first two years of its contract, CBRE undersold the majority of the 52 properties it had picked to market by millions of dollars under their assessed values. In Seattle, Washington, CBRE sold a building assessed at $16 million for $8 million. In mid-2013, it sold a 17-story office building in St. Paul, Minnesota for $20 million under the value assessed for it in 2009, shortly before it was put on the market by CBRE at $5 million.

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. 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, as evidenced by Figure 1.

Interviews about standard real estate practice with experts provided by the National Association of Realtors indicate that selling properties at or below assessed values can occur because the property is distressed or located in an impoverished area, or logically, because the realtor wants to move a portfolio of listings quickly. Since time is money, the realtor is willing to lowball multiple deals that generate fast commissions, instead of taking the time and expense of showing each property to many prospective buyers.

But the vast majority of the CBRE-negotiated sales did not involve distressed properties. The sales were mostly of central downtown buildings with parking in wealthy or revitalizing neighborhoods that attracted restaurant, boutique, and residential developers; and modern, suburban office buildings and warehouses 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. And yet 43 of CBRE's 52 sales came in at prices far below their assessed values. Figure 2 shows the gap between assessed value and the CBRE sale price for properties over $5 million. Figure 3 reveals a similar discrepancy for properties sold for under $5 million.

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 its client in a competitive marketplace.

In a series of non-arm’s-length transactions, CBRE has sold 20 percent of its postal portfolio to its own clients and/or business partners. In Boston, it sold a parcel to a developer with whom it was partnered at a large discount to its assessed value. And it sold another Boston parcel to one of its largest shareholders, Goldman Sachs Group. Real estate industry ethics require agents to get the best deal for their clients, not for their business partners and owners.