SACRAMENTO-California’s Department of General Services has chosen a partnership led by Houston-based Hines and Antarctica Capital Real Estate LLC as the buyer for an 11-property, 7.3-million-square foot portfolio of state office buildings that it has been marketing as a sale-leaseback since early this year. The winning offer of $2.33 billion was one of more than 300 bids and will generate more than $1.2 billion for the state general fund as well as $1.09 billion to pay off bonds on the buildings.
The all-cash offer will be financed with “a typical debt and equity ratio with the general partners and investors providing approximately 40% of the purchase price, and a major financial institution supplying the balance as a loan to the new owners,” according to a prepared statement by the state. The state will lease back the buildings from the Hines-Antarctica partnership, which is called California First, over the next 20 years. All of the leases allow the state to buy back any or all of the buildings at any time during the 20-year term.
The portfolio was marketed on behalf of the Department of General Services by a CB Richard Ellis team headed by Kevin Shannon in the South Bay office of CBRE in Torrance. Shannon notes that the $2.33 billion sales price far exceeds the $660 million originally estimated. “Far from a fire sale, this was a stiff, multiple-offer competition that generated favorable pricing for the state,” Shannon said. Ron Diedrich, acting director of the Department of General Services, said that the sale “will allow us to bring in desperately needed revenues and free the state from the ongoing costs and risks of owning real estate.”
In April, CBRE received more than 300 offers, including individually priced bids on each building, but the most aggressive pricing came largely from 30 offers for the entire portfolio. Portfolio buyers were given the opportunity to submit a second round of offers on May 11. CBRE received 16 increased portfolio offers, 11 of which exceeded the state’s $2 billion estimate of the value of the properties. Those 11 bidders were then invited to submit a “best and final” offer by May 21.
Following the May 21 deadline, the Department of General Services and CBRE evaluated the top offers and interviewed each finalist. Buyers were evaluated based on two primary factors, price and certainty of execution, the DGS says.
The portfolio will managed by Hines, which is the current landlord of more than one million square feet of State of California leases, according to Colin Shepherd, Hines senior vice president. Hines’ partner in the deal, Antarctica Capital Real Estate LLC, is a venture led by California real estate veteran Rich Mayo of Spyglass Realty Partners, along with Chandra Patel of Antarctica Capital, which is headquartered in Irvine, CA and New York City. There are also additional equity investors, according to the DGS statement.
The 11 properties include four in the San Francisco area, two in Los Angeles and five in Sacramento. The San Francisco area properties are the California Public Utilities Commission Building at 505 Van Ness Ave. in San Francisco, the San Francisco Civic Center at 350 McAllister Ave. and 455 Golden Gate Ave., the Elihu Harris Building at 1515 Clay St. in Oakland and the Judge Rattigan Building at 50 D St. in Santa Rosa.
The Los Angeles properties are the Junipero Serra State Building at 320 W. Fourth St. in Los Angeles and the Ronald Regan State Building at 300 S. Spring St. in Los Angeles. The Sacramento area properties include four in Sacramento: the Attorney General Building at 1300 I St.; the Capital Area East End Complex at 1430 N St., 1500, 1501, 1615 and 1616 Capital Ave.; the Department of Justice Building at 4949 Broadway and the Franchise Tax Board Complex at 9645 Butterfield Way. The fifth Sacramento area property is the Cal EMA building at 3650 Schriever Ave. in Rancho Cordova.