USPS Closing, Consolidating More Facilities

Facing a projected budget deficit of more than $14 billion, the U.S. Postal Service (USPS) announced last month (on February 23) that it will slash the size of its mail processing network by almost half.  Of the 264 plants (out of a total of 461 plants nationwide) on a closing review list, 223 will be consolidated “all or in part,” while 35 will remain open for now.  Decisions about another six possible closings will be made pending further study.

How bad are things at the distressed self-funding federal agency—which is legally obligated to serve all Americans, regardless of where they live or work, at uniform price and quality?  “With the dramatic decline in mail volume and the resulting excess capacity,” said Postmaster General Patrick Donohoe last fall, “maintaining a vast national infrastructure is no longer realistic.”  The USPS lost $3.3 billion last quarter; total mail volume was down 6% from the same time period in 2010, which is typically the agency’s most profitable because it includes the winter holiday season.  Earlier last month (on February 17), the agency released a new five-year business plan that aims to return the USPS to profitability by reducing its annual costs by more than $22 billion by 2016.

The just-announced closings and consolidations are expected to reduce operating costs by $2.6 billion annually and result in net savings of $2.1 billion.  They also result in the loss of an estimated 35,000 jobs (with more job cuts to come, resulting in a total loss of about 155,000 jobs by 2016) and relaxed service standards for first-class and priority mail that will put an end to next-day deliveries and, eventually, Saturday deliveries.

Since 2006, the Postal Service has closed 186 facilities; in 2011 alone, it sold more than $140 million worth of post offices and other property.  Last summer, the agency announced its plans to “right-size its expansive retail network” by studying approximately 3,700 retail offices that make up about 12% of its total retail outlets.   Many of those facilities are expected to be closed; some will be replaced with “Village Post Offices” operated by local businesses such as pharmacies, grocery stores and other retailers, which would offer limited postal products and services.

What does all this mean for real estate? While the USPS is planning to continue to “dispose of” significant amounts of property, sometimes a disposition simply means that a lease is not renewed.  The closing processing facilities are largely industrial/warehouse properties that may be suitable for continuing use as such, or for adaptive reuse, and many of the facilities—which total about 30 million square feet of space—may be sold to private investors.  The closing retail facilities also include a number of structures that private investors may find attractive—some of which are of historic significance. As the Wall Street Journal reported last September 14th, “The U.S. Postal Service’s proposed sale of property … would transfer to private hands some historic public buildings filled with art that was intended to lift the spirits of Americans during the Depression.”  Some 28 percent of the buildings owned by the USPS, the Journal noted, “are either on the National Register of Historic Places or eligible to be listed due to their historical significance.” And about 800 post offices contain murals and sculptures created between 1934 and 1943 through a federally funded arts program.

Although it’s not clear how many historically significant post offices will be sold, some sales already have been completed.  More than a year ago, the Postal Service sold Palm Beach, Florida’s historic post office, which closed last June, to real estate investor Jeff Greene for $3.7 million.  Greene, who plans to house his company’s offices in the Mediterranean-style building, will keep the building’s New Deal–era murals through a loan agreement with the USPS. (The USPS maintains ownership of all artwork when it sells buildings, and told the Journal that it “takes great pains to move them to a local library or other public venue or work out a loan deal with the new owner.”)

No new sales will take place in the near future, since the USPS—in response to congressional pressure—has put in place a freeze on all closings of plants and post offices until May 15.  But Postal Service spokesman Sue Brennan said last week that “right now, the plan is to move forward after the moratorium ends” and added that the agency’s goal is to complete the process within 12 to 18 months.

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