Competing investors have made more than 300 offers to buy two dozen of the state of California's best office buildings, the Department of General Services said Friday.
The state put the offices on the market in February. It plans to sell the structures, including the Ronald Reagan State Building in downtown Los Angeles, and then lease them back from the new owners for at least 20 years.
Gov. Arnold Schwarzenegger and the Legislature approved the sale last June in the hope of raising hundreds of millions of dollars for the state's strapped general fund.
Some former state officials and building commissioners have objected, though, saying that the plan was shortsighted and that the state would be better off financially in the long run if it owned rather than rented its buildings. A state legislative committee will hold hearings Wednesday on the proposed sale.
Investors were invited to make offers on individual office buildings or the entire portfolio of 24 buildings at 11 sites in Los Angeles, San Francisco, Sacramento, Oakland and Santa Rosa. Bidding was robust enough that only offers on the entire portfolio will be considered from now on, said real estate broker Kevin Shannon of CB Richard Ellis, who is handling the sale for the state.
"We had anticipated a strong response and were pleasantly surprised," Shannon said, by the number of and the eminence of the would-be buyers. He declined to identify individual bidders, but said they included real estate investment trusts, pension funds and private buyers from the U.S. and overseas.
CB Richard Ellis will enter negotiations with the buyers who submitted the highest offers, and the state plans to select a buyer in late May.
"We are more than pleased with the competitive offers that have been submitted," said Ron Diedrich, acting director of the Department of General Services.
The state plans to use the proceeds to pay off more than $1 billion of bonds it sold to fund office construction. State officials hoped at the outset of the sale that the portfolio would garner $2 billion and let the state net about $660 million for the general fund. The sale is now expected to net "significantly more" than that, Diedrich said.
There are many large investors trying to buy commercial real estate now that property values have fallen with the recession. But few buildings are for sale because many landlords are hoping to hang on until the market improves, and banks have been reluctant to foreclose on owners who have fallen behind on their payments.
"The current supply-demand imbalance for investment product is clearly playing into the state of California's favor," Shannon said. Buildings full of tenants on long-term leases are especially attractive to investors.
Opponents of the plan to sell the office buildings are continuing their fight. On Wednesday, former members of the State Building Authority commissions for Los Angeles and San Francisco will testify before the Assembly Committee on Accountability and Administrative Review.
One of those testifying will be Los Angeles developer Jerry Epstein, who was recently relieved of his post by Diedrich after having served on the commission for nearly 30 years. He helped supervise development of the Ronald Reagan and Junipero Serra state office buildings in downtown L.A.
"California is obligating itself to pay market rent for the next 20 years, with no anticipated new revenue to pay for it," he wrote in an op-ed piece in The Times this month.