State pushes ahead with building sale, but concerns mount*

The state, facing a $20 billion shortage and hoping to ease its cash crunch, is pushing ahead with its plan to sell 11 state properties and then lease them back from their new owners.

The state hopes to make $2 billion on the deal, which is not yet final.

The state “expects to make an announcement in the coming weeks,” said Eric Lamoureux of the Department of General Services.

Gov. Arnold Schwarzenegger authorized the plan, and the Los Angeles-based real estate firm CB Richard Ellis is serving as the DGS’s broker. The company presented 11 properties to potential buyers in a ‘Golden State Portfolio’ on Feb. 26, after announcing the sale on Dec. 11, 2009. Bidding began on April 14.

The buildings being offered for sale make up 7.3 million square feet of office space. They include structures such as San Francisco’s Civic Center, the building housing the state Supreme Court in San Francisco, downtown Sacramento’s East End Complex, the attorney general’s headquarters in Sacramento, Los Angeles’ Ronald Reagan Building, Santa Rosa’s Judge Joseph A. Rattigan building, and the Elihu M. Harris Building in downtown Oakland.

The State has boasted that it will maintain 100 percent occupancy in the leased buildings. The lease is set to last for at least 20 years, after which the state could extend the lease or buy back the properties.

The potential benefits of the lease are hotly debated.

The deal itself is expected to yield $660 million, with CB Richard Ellis receiving offers in excess of $2 billion. It would also retire more than $1 billion in bond debt.  Additionally, the lease will require the building’s buyer and new owner to pay for services like waste hauling and security.  The auction has received 300 bids.

However, the Legislative Analysts Office has raised concerns about the plan’s effectiveness. The LAO called it ‘poor fiscal policy,’ and pointed out that the rent would initially cost $30 million a year, but could easily increase to $200 million per year during the 20-year period.

Other fears include the slumping real estate market, with many seeing the leasing as a fireside sale. Critics have pointed to previous studies and attempts made in 1973 and 1997, showing that leasing and renting government buildings as economically unsound.

Other states have looked into this method of funding. Arizona has already leased and is now renting their state capitol. Their plan allows for the buildings to revert back to state ownership after twenty years. Connecticut has also announced plans to sell, rather than lease, several surplus properties.

The buildings up for sale include:
—    The East End Complex in Sacramento
—    Attorney general’s headquarters  building in Sacramento
—    The Ronald Reagan Building in  Los Angeles
—    Judge Joseph A. Rattigan building in Santa Rosa
—    Elihu M. Harris Building in downtown Oakland
—    The California Energy Management Agency building in Rancho Cordova
—    The Department of Justice Building in Sacramento
—    California Public Utilities Commission building in San Francisco
—    Junipero Serra State Building in Los Angeles
—    California Civic Center in San Francisco
—    Franchise Tax Board Complex in Sacramento

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*Edtor’s Note: CORRECTS  by deleting reference to Orange County fairgrounds in final line.