WORLD PROPERTY CHANNEL ®

• State Needs the Money to Make Up $21 Billion Budget Deficit.
• California Hopes to Net $2 billion for the total 7.3 million square feet.
• Foreign Buyers Expected to Come In With All-Cash Offers.
• California Would Lease Back the Properties and Pay Annual Rent of $12.2 million or about $2 per square foot.
• Downtown Class-A, L.A. Buildings Once Rented for up to $75 per square foot.
• Deal Has to be Done by New Fiscal Year Starting in July.
• The buildings are on 11 sites in Los Angeles, Sacramento, Oakland and Santa Rosa.
• The 20-year-old, 19-story, 781,000-SF Ronald Reagan State Building Leads the Sales List.
• State agencies occupy all of the Ronald Reagan twin-tower space.
• Deal Would Place All of the Properties Back on the Tax Rolls.
• CB Richard Ellis is marketing all the properties.

(LOS ANGELES, CA) -- In the largest deal of its kind in decades, California is selling 24 state-owned office buildings totaling about 7.3 million square feet for an anticipated $2 billion.

Gov. Arnold Schwarzenegger said the state is selling the properties to make up a budget deficit of $21 billion.

Kevin Shannon

Numerous civic services and agencies already have been eliminated in California for lack of operating funds

The buildings formally go on the market in February and have to be sold by July, the start of the state's new fiscal year. The state already has begun accepting write-in bids for the properties.

The Los Angeles office of CB Richard Ellis is marketing the properties.  "It's the largest office deal available in the country right now," CBRE vice chairman Kevin Shannon tells the Los Angeles Times.

Ronald Reagan State Building

Highlighting the properties-for-sale list is the 20-year-old, 19-story, 781,000-square-foot Ronald Reagan State Building at 300 South Spring St. in Downtown Los Angeles.  The twin-tower structure is 100 percent occupied by state agencies.

Another landmark Los Angeles property for sale is the 10-story, 519,101-square-foot, 100-percent-leased Junipero Serra Building at 320 W. Fourth St.

The 96-year-old former Broadway Department Store building was renovated by the state in 1990 but is still considered a Class-B building versus a Class-A rating for the Ronald Reagan Building.

Junipero Serra Building

California plans to lease back all of the space in the 24 buildings at an estimated total annual rent of $12.2 million or about $2 per square foot. The leases would be for a minimum 20 years.  Downtown Class-A office buildings in Los Angeles once rented for up to $75 per square foot.

The leasing terms for the buyer would be ideal, notes Eric Lamoureux of the California Department of General Services. "It's a great opportunity for an investor to get a building with an occupancy of 100 percent, which you don't normally get in the marketplace today," he tells the Los Angeles Downtown News.

Besides the needed revenue, the sale would also place the properties back on the tax rolls, "...something that will benefit the state in the long run," adds Lamoureux.

Ron Diedrich

Foreign buyers and American institutional investors are expected to be first at the buying table, probably making all-cash offers, according to Los Angeles brokerage sources familiar with the tight realty capital markets.  Bank loans would be a rarity in this situation, they say.

Ron Diedrich, acting director of the California Department of General Services, approved the sale of the properties.

"Most businesses aren't in the business of investing in real estate portfolios and I don't think the state (of California) should be, either," Diedrich tells the Los Angeles Times.

"By doing this (sale), we are freeing up hundreds of millions of dollars to help the citizens of California by retiring billions of debt," Diedrich says.  "That's a good thing for California now and in the foreseeable future."  

 

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