Posted by: BayAreaComRE | April 19, 2010

Deliberation Begins for the Sale-Leaseback of the Golden State Portfolio

The offers have been submitted for the Golden State Portfolio, an expansive sale-leaseback by Arnold Schwarzenegger’s office. The portfolio includes  7.3 million square feet comprising 11 buildings in San Francisco, Sacramento and Los Angeles (among other cities). CB Richard Ellis brought it to the market in early March and the deliberation begins today on the various offers that came in last week.

In a story by the Wall Street Journal, the state believes their portfolio’s return on investment has improved over the last few months. “The state is hoping dozens of investors will bid on the closely watched portfolio—which includes the San Francisco Civic Center and the Junipero Serra state building in Los Angeles—driving the value of the deal to more than $2 billion including debt. That would net as much as $1 billion for the state after it pays off the debt on the property, which is in the form of bonds.”

California’s optimism may not be as blind as people think. Due to the dearth of supply that has come to the market from new construction, defaults or old-fashioned sales, an inordinate amount of investors are bidding on buildings that are brought to market. We talked with a prominent real estate investor firm last week that echoed this sentiment. While the market is still the worst in 70 years, the current economic environment may not be as much a buyer’s market as in past recessions.

Notwithstanding some positive signs for this sale-leaseback, there are negative factors acting against California. “California’s financial crunch might turn off some prospective bidders, however. Many landlords look favorably on large, creditworthy tenants who will sign long-term leases, because the guaranteed income stream lowers their future risks. But California’s credit took a hit over the summer when state leaders failed to agree on budget solutions and California began issuing individual registered warrants—essentially IOUs—to pay its bills. Fitch Ratings has an A-minus credit rating on California, the lowest rating for any state in the country.”

The diversification of the portfolio within several different markets and the unconventional sale-lease back model offered by the state may further deter investors. One thing is for sure, with governments mismanaged resources leading to bankruptcies, seen in Vallejo, California on the city level and Greece on a macro level, coupled with the Golden State’s poorest credit rating in the country, California is not the credit tenant it once was.

According to CBRE’s website, the offers from investors were due on April 14. The state will deliberate this week, and weed down the investors. A buyer could not be selected until May 28, 2010, if they find a buyer at all. The state’s initial offering for $2.1 billion with a 7% cap rate is a high number, but there will no doubt be bottom feeders to bring the state and CBRE down to reality. Here is the CBRE website that markets this portfolio.

Read the full Wall Street Journal article here.


  1. […] further breaking news on the Golden State Portfolio. See our story that led to this announcement Deliberation Begins for the Sale-Leaseback of the Golden State Portfolio. We anticipated the offers to come in below the state’s mark, because we underestimated the […]

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