The Postal Service has decided to relocate its postal facility in Dana Point, California. The Postal Service currently owns a 20,000-square-foot building housing a retail post office and a carrier operation, but postal officials say they need only 11,000 square feet, so they want to sell the building and lease a smaller space.
Diana Alvarado, manager of property management for the Postal Service, says that downsizing the Dana Point facility would save the Postal Service $52,000 annually. It’s hard to see how.
There’s a detailed description of the Dana Point deal on the USPS-CBRE “Properties for Sale” website right now (if it gets deleted, an archived version is here). It says that the Dana Point facility is being offered for sale at $6.1 million. The buyer must also submit an Alternative Quarters offer to provide space for the new facility.
The new space must be at least 11,511 square feet. The USPS will sign a 10-year lease with four 5-year renewal options at a rent of $19.50 per square foot. The website indicates that buyers “are welcome to submit their own ‘market’ rental rate,” so presumably the Postal Service would be willing to pay a bit more. The terms of the lease include a 2.5% annual increase in the rent.
In the first year of the lease, then, the Postal Service would pay $224,465. By 2043, those 2.5% annual increases would bring the rent to double that amount. The total rent paid out over the 30 years of the lease would be $9.8 million.
The Postal Service thus hopes to sell the building for $6.1 million, and it’s ready to pay out $9.8 million in lease costs. How does that save $52,000 annually?
If the estimate is somehow correct, the total savings over 30 years would come to $1.6 million. As an alternative to selling the facility, the Postal Service could subdivide the space and rent out the extra 9,000 square feet. If it were able to rent the excess space at the $19.50/sf (plus 2.5% annual increases) that it's prepared to pay for a new space, the Postal Service could generate over $7.7 million in revenue over 30 years (minus renovation costs).
It's hard to see how the relocation deal makes sense for the Postal Service. As every homeowner knows, renting may be cheaper in the short run, but owning is a better deal over the long term, especially if the owner also has an opportunity to bring in some rental income as well.
In any case, one entity that is sure to come out ahead on the Dana Point deal is CBRE, the Postal Service’s exclusive real estate broker. It may make a commission on selling the building and arranging the new lease.