on May 14th, 2013 in Strategy & Public Policy | 5 comments
 

In the late 1950s, McDonald’s executives discovered that being in the real estate business was more profitable than focusing solely on the food business. McDonald’s founder Ray Kroc had a business partner, Harry J. Sonneborn, who devised a plan to purchase or lease the land on which nearly all McDonald’s restaurants would be located. He then charged franchisees a monthly rental fee for the land, or a percentage of their sales, whichever was greater. The rest, as they say, is entrepreneurial history.

With 33,000 facilities on more than 300 million square feet of land, the U.S Postal Service operates more retail outlets than McDonald’s. The Postal Service owns and leases properties in high-traffic areas, often in a city’s most desirable location. Is there an opportunity for the Postal Service to lease or sublease its vast real estate holdings to other businesses to generate revenue and improve cash flow? Could the Postal Service sell its facilities in desirable locations and lease back a portion of the facility as needed?

For example, the Postal Service partnered in 2007 with a development company to renovate and lease out part of the main Post Office in New York City (James A. Farley building) for retail and other purposes, including a new Amtrak train station and hotel space. While the redevelopment has hit construction delays, it remains a promising model for future plans.

These kinds of opportunities are not necessarily restricted to post offices in large cities. Smaller facilities are likely to be attractive to third parties as well. One example is the Redondo Beach Galleria Station in Redondo CA, a very small retail unit in a shopping mall, currently on the market to be subleased.

Do you think the Postal Service should sell or lease its facilities in prime real-estate locations? Should it have any restrictions on which facilities it can sell or lease or what types of operations can lease a postal facility? Should there be restrictions on how the Postal Service uses the revenues raised from such a sale or lease? Share your thoughts.

5 Comments

The OIG should investigate the circumstances and extremely favorable terms of the exclusive contract given by USPS management to CBRE — a company chaired and largely owned by Senator Dianne Feinstein’s husband, Richard C. Blum — as well as whether that company is driving the current fire sale of prime PUBLIC properties that often contain buildings of great historic and architectural merit as well as PUBLIC art paid for by and belonging to the American people. The U.S. Post Office was created to provide a public service, not to operate as an adjunct to a giant for-profit real estate firm.

Thanks for your input. We are in the process of developing our project plans for Fiscal Year 2014. During that process, we will discuss your comment and take it under consideration for a future project.

What are the terms of the CBRE contract and who is managing this contract?

Certainly, excess properties could be sold, but there needs to be some oversight to ensure that everyone’s best interests are being served. Rather than selling a property and leasing back some or all of it, why not sell it subject to the reservation of a possessory interest — in some or all of the space — for a terms of years. It would bring in a smaller sales price, short-term, but provide USPS with rent-free occupancy into the future and save money long-term.

A sound real-estate strategy is needed. As the use of mail shrinks and the Postal Service gets leaner, it doesn’t make sense to keep under-used facilities or post offices open. Where the real estate could fetch a good price, it seems logical to consider leasing or selling it. But this has to be done in a transparent way and with the best interests of all stakeholders in mind. The Postal Service is a public entity held in the public trust, and in that regard, it is owned by the American people. Personally, I do not want to pay (through higher postage prices) for unused or underused post buildings and real estate. It is time to shrink the network to the current and future workload. But I also don’t want the Postal Service to sell properties and then use the proceeds to buy a private corporation, for example. A strategy on when and how to sell or lease, and then how the proceeds will be used is needed.

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