Gov. Brown Halts State Building Sale

Katy Grimes: For one year, I’ve been writing about the smelly deal of the sale of the 11 state-owned properties. In December it was halted until Gov. Brown’s administration could assess the sale and Gov. Schwarzenegger was out of office. And now, it was announced yesterday that it is off the table.

The sale of the 11 office building properties was slated to raise $1.2 billion for the state budget, but the deal was highly questionable.

Last Feb 2010, I first wrote about the sales deal in State selling properties to raise cash. “This deal started last year when Gov. Arnold Schwarzenegger directed the Department of General Services to sell the properties in order to raise cash for the state. DGS prepared the property valuations and estimated sale prices, and awarded the contract to commercial real estate company CB Richard Ellis.”

The Legislative Analyst’s Office reported that the sale would end up costing taxpayers at least $1.4 billion over 35 years. The state would have to pay an effective interest rate of 10.2 percent to rent back the buildings it now owns, about double what the state pays on existing bonds used to build its offices.

Last April I spoke with several commercial real estate experts who had more questions than answers about the deal. One expert interviewed had looked at the portfolio for a client, and found that the state would receive an offer based on very preliminary due diligence and then have both the price and lease terms changed after other competitors were removed. He said that there should have been evidence of interest in the properties left by other serious buyers, but saw none, leaving him concerned that there were not that many buyers out there, or they were not really looking carefully at the buildings.

Another expert was specifically concerned with the draft form lease. It included what he referred to as a “payoff for the SEIU” — purchasers of the properties would have been required to pay the trades (janitors, security guards etc.) a set percentage of their total state of California compensation package for the same classes of workers, even if it was far higher than the “prevailing wages.”

In December when I heard that the sale might have been put on hold, I wrote “Opponents also questioned how the bidding process went down. During a recent deposition of state Treasurer Bill Lockyer, it was revealed that the winning group of investors arranged for a $500,000 “finder’s fee” for Santa Ana Mayor Miguel Pulido if the sale was successful. But many are asking if Pulido used inside information that came to him as a public official for personal financial gain.”

At a press conference yesterday, Brown told reporters, “Selling state buildings is the ultimate in kicking the can down the road.”  And he is right.

The large, prominent office buildings for sale included the Judge Joseph A. Rattigan Building in Santa Rosa, the Attorney General Building in Sacramento, and the Franchise Tax Board Complex in Sacramento, were going to be sold to private investors and then leased back by the state over 30+ years.

Read all of my stories about the state selling off state properties: State Selling Properties To Raise CashFired official slams state ‘fire sale’Critics slam state property sale, and DGS Absent At Hearing.Critics slam state property saleFired official slams state ‘fire sale’LAO report: Evaluating the Sale-Leaseback Proposal,
and Chris Thornberg, founding principal of Beacon Economics and chief forecaster for the state controller prepared a report on the sales: Chris Thornberg’s report on the property sales: A Bad Deal

Every step of the way, it appeared that the Department of General Services and someone in the Schwarzenegger administration had a plan in mind for the property sales, that no one was going to derail. It looks as though Jerry Brown just isn’t buying into their plan.

FEB.10, 2011

Tags assigned to this article:
budgetCaliforniaDGSJerry Brownstate

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