The Postal Service’s untapped real estate fortune
At least on paper, the coronavirus crisis should have been a boon for the USPS’ business, with packages going out in droves. Nationwide quarantine orders have sent stock prices surging for businesses like Blue Apron, which mails customers recipe materials and instructions, while online retailers are scrambling to keep up with explosive demand. The typical apartment mailroom looks like a miniature warehouse.
But in reality, the agency faces grave new financial challenges, above and beyond the perilous financial position it had already been facing. Costs have risen while overall regular mail volumes have collapsed, despite all those packages.
In response, the USPS has requested a taxpayer bailout that would include $25 billion to navigate the current crisis, $25 billion in loans to keep operations afloat and $25 billion for unmet capital needs, including $11 billion for a fleet of new mail trucks and $14 billion to spruce up all those under-maintained retail storefronts and distribution centers.
Each passing month without a long-term fix puts more pressure on the USPS to make the most of the assets it has. Yet the Postal Service’s greatest asset – its real estate portfolio – has gone largely undiscussed. Most post offices are leased, but the USPS still owns more than 8,400 facilities, ranging from hole-in-the-wall post offices to massive sorting centers. Altogether, its portfolio encompasses nearly 200 million square feet of interior space and 900 million square feet of land.
Many of these properties occupy prominent locations in some of the United States’ most lucrative real estate markets. Yet USPS facilities often sit squat and surrounded by surface parking lots, a product of onerous agency minimum parking requirements, even where most people get around by foot, cab or public transportation. To the extent that the USPS could encourage the more productive use of its valuable real estate – such as by allowing new residential buildings to rise above brand new ground-floor USPS facilities – the agency may be sitting on an untapped gold mine.
Take a stroll around Manhattan’s hottest rental markets, and the USPS facilities will stick out like a sore thumb. Mere blocks from Times Square, a drab USPS facility rises only four stories along glitzy 42nd Street. Midway between Union Square and Astor Place, another USPS facility stands a mere two stories, flanked by high-rise residential towers. Conspicuously underbuilt USPS facilities like this abound, not only in Manhattan, but in urban areas across the country.
Local governments have limited ability to regulate the land use of federal postal establishments, meaning the USPS could take action without onerous local zoning restrictions or raucous public meetings. This means that, at least in theory, it’s in a strong position to develop properties at greater density than local “not in my backyard” activists might otherwise allow. In high-cost markets from Boston to Los Angeles, those extra rents could be a valuable source of income.
Opening up these properties to redevelopment proposals could address multiple problems all at once. The USPS – retaining title to the land – could collect a share of the rents from all the new apartments and retail space. Where the USPS is happy with its current location, it could condition any proposal on being deeded ownership over ground-floor space. And for cities, it would mean a welcome supply of new housing. The USPS could even require that redevelopment proposals set apartments at below-market rates for staff.
Admittedly, no injection of cash is going to address the Postal Service’s long-term challenges. The agency’s vast service obligations and limited institutional flexibility aren’t going away. But part of a near-term solution could be to fully leverage the post office’s existing assets, including its real estate, unencumbered by the forces otherwise blocking new development in cities. The USPS should take advantage of that.