California accepts $2.33-billion bid for 24 state office buildings
California officials accepted a winning bid Monday of $2.33 billion for 24 state office buildings from a consortium of three U.S. investment companies.
The state will lease the buildings, including two in downtown Los Angeles, back from the new owners for at least 20 years. The sale will generate $1.2 billion for the state general fund and $1.09 billion to pay off bonds on the buildings.
“This offer presents the best value for the state and achieves the goals set forth by the Legislature and governor,” said Ron Diedrich, acting director of the Department of General Services. “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.”
As reported last month by The Times, the new owners are Hines and Antarctica Capital Real Estate, the latter a partnership of Antarctica Capital and Spyglass Realty Partners.
Hines, a Houston-based developer, will manage the properties. Antarctica Capital -- which has offices in New York and Irvine -- and Spyglass Realty of Irvine make investments on behalf of clients such as pension funds and institutions.
“We think the opportunity to acquire this large of a portfolio all at one time with a solid tenant like the state of California makes good sense,” said Richard Mayo, managing partner of Spyglass and Antarctica Capital Real Estate.
The state’s broker, CB Richard Ellis, received more than 300 offers to purchase the buildings. The state was able to get high bids because investors are able to borrow money at low rates. The state could also lock in favorable rental rates because the overall office market is soft, broker Kevin Shannon of CB Richard Ellis said.
“The proceeds at the sale price of $2.33 billion will far exceed the $660 million originally estimated,” Shannon said. “Far from a fire sale, this was a stiff, multiple-offer competition that generated favorable pricing for the state.”
The all-cash offer says the buyers will put down 40% of the purchase price, with a major financial institution supplying the balance as a loan to the new owners.
The portfolio includes 24 buildings on 11 sites in Los Angeles, San Francisco, Sacramento, Oakland and Santa Rosa. The buildings in Los Angeles are the Ronald Reagan State Building on Spring Street and the Junipero Serra building on Broadway. The sale is expected to close in 30 days.
The buildings will not be allowed to decay, Antarctica's Mayo said.
“We are putting a substantial amount of real cash equity into this deal,” he said. “We have all the incentive in the world to make sure these buildings are maintained.”
-- Roger Vincent
Photo: The Ronald Reagan State Building in Los Angeles. Credit: Damian Dovarganes / Associated Press