State of CA putting buildings on the sale block

California's current budget deficit is $20 BILLION

LA Times
Two dozen state office buildings across California officially go on sale Friday as the cash-strapped state seeks to raise more than $2 billion to pay off some of its long-term debt.

The state plans to sell the buildings, which include the Ronald Reagan State Building in downtown Los Angeles, and then lease back the office space for state use for at least 20 years. Gov. Arnold Schwarzenegger and the Legislature approved the sale last June.

Under the proposal, for example, the twin-towered Reagan state office building at 3rd and Spring streets would be purchased by an investor who would in turn lease it to the state. The state would pay the new owner an estimated $12.2 million a year in rent, according to the plan.

State officials will now accept bids on 24 office buildings on 11 sites in Los Angeles, Sacramento, San Francisco, Oakland and Santa Rosa. Investors may buy the properties en masse or individually.

The planned sale comes during one of the worst real estate markets since the Great Depression. Commercial property values have fallen as much as 40% from their 2007 peak, according to industry analysts. Although the depressed market may hold sales prices down, it may also help the state as it negotiates how much to pay in rent after it leases back the buildings.

The recession drove up vacancy rates in many privately owned office buildings as white-collar companies contracted through layoffs or closed their doors. Landlords in most of the country's major office markets have been forced to reduce rents to attract or keep tenants.

The sales would add an additional 7.3 million square feet of rented office space to the 20 million square feet the state already leases from the private sector, according to the Department of General Services. Acting Director Ron Diedrich said he approved of the plan to sell the offices.