California selects buyer for 11 state properties
By JUDY LIN, Associated Press
Oct 11, 2010 6:11 PM CDT

The state announced Monday it is selling 24 government office buildings _ including the Ronald Reagan State Building in Los Angeles and the San Francisco Civic Center _ to a group of private investors for $2.3 billion.

Ron Diedrich, acting director of the California Department of General Services, announced it selected the offer from California First LLC, a partnership led by a Texas real estate firm and an Orange County private equity firm.

About $1 billion of the sale will be used to pay off bonds on the buildings, leaving more than $1.2 billion to go into the state's general fund.

"After an extensive review of more than 300 bids that were received, I have determined that this offer presents the best value for the state," Diedrich said in a statement. "This sale will allow us to bring in desperately needed revenues and free the state from the ongoing costs and risks of owning real estate."

Gov. Arnold Schwarzenegger and lawmakers included the sale as part of the state budget last week. The Republican governor said California had received solid offers to sell the 24 buildings on 11 parcels and then rent that space back for 20 years at market rates.

It's unclear how the current deal will work out for taxpayers over the long run, but there have been concerns.

The Associated Press reported earlier this year that the deal would end up costing the state $5.2 billion in rent over 20 years, perhaps saddling taxpayers with costs beyond whatever the state would net from the sale. Three of the properties already are paid off, while four others were expected to be paid off in the next five years.

The nonpartisan legislative analyst's office also warned that selling the properties then renting back the space could cost the state an additional $1.5 billion, based on a 35-year projection. And a study by Beacon Economics reached a similar conclusion by looking at a 30-year period.

That study was commissioned by the Service Employees International Union Local 1000, the largest state employee union.

The Legislature will have 30 days to review the sale but cannot make any changes because of a provision in the budget package passed last year that authorized the sale.

Legislation introduced this year that would have given oversight of the matter to lawmakers was killed in committee.

The state said it received more than 300 offers to purchase the buildings. Some of those buildings include the attorney general's office and the California Emergency Management Agency in Sacramento, the Elihu M. Harris building in Oakland, and the Judge Joseph A. Rattigan building in Santa Rosa.

Diedrich said the department recommended California First LLC based on the buyer's financial capabilities and the terms of its offer. The consortium is led by Hines, a privately owned real estate firm headquartered in Houston, and Antarctic Capital Real Estate LLC, an international private equity firm.

Antarctic Capital Real Estate was listed as a venture between California real estate veteran Rich Mayor of Spyglass Realty Partners and Chandra Patel of Antarctica Capital, which is headquartered in Irvine.

"California First LLC is pleased and proud to have been selected to be the steward of a number of the state's assets," said Colin Shepherd, Hines senior vice president, in a written statement. "Our purchase price represents fair market value and exceeds the state's initial anticipation of net proceeds."