Calif. to sell off office buildings to generate cash


Among the 11 buildings is the headquarters of the California Public Utilities Commission at 505 Van Ness Avenue and the Civic Center building that houses the state's Supreme Court, both in San Francisco. The Ronald Reagan state office building in Los Angeles is also on the list.

Gov. Arnold Schwarzenegger said in San Jose Friday morning that he expects such a deal to realize $1.2 billion after bond debt on some of the structures is paid off. The process would be done by competitive bid.

However, critics have argued that the state will incur far greater costs in the long run. The non-partisan Legislative Analyst's Office projects the plan will cost $1.5 billion more than not doing the sale/lease-back deal. A study done by Beacon Economics, commissioned by the Service Employees International Union, Local 1000, yielded a similar number. Another analysis by the Associated Press projects the long-term cost could exceed $5 billion.

The governor said he does not like selling buildings. He said he has done a lot of real estate deals in his private life.

"I always believed in buying real estate, rather than selling real estate. But you know, when you're in a financial crisis that we are, then you have to make decisions," he said.

However, he said, tough decisions have to be made in a financial crisis.

Ron Rossi, a commercial real estate expert based in San Jose, said that the state is not likely to get top dollar for its real estate for two reasons -- the current state of the property market and the risk of any landlord not getting paid by the state during future budget crises. A sale/lease-back, Rossi says, has a limited upside for investors because the rent will be locked in for a long period.

The state's Department of General Services said it has received over 300 bids for the buildings, but it will not disclose who the bidders are.

Commercial real estate broker Craig Leiker speculates they are pension funds or investor groups in search of steady income from rent.

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