Bankrupt State Of California Starts Selling Office Buildings, CB Richard Ellis Markets Largest Office Portfolio In America
CB Richard Ellis has a brand new client: the bankrupt state of California, which is now attempting to sell what is the largest office portfolio currently marketed nationwide, at 8.7 million square feet. The California Department of General Services has announced CBG has been retained to sell 17 office buildings. The state is hoping the sale will generate more than $660 million in proceeds to offset cuts in the state budget. With a budgetary hole in the billions, California will likely need to throw in quite a bit of beachfront property in order to make it seem like it has the fiscal catastrophe under control.
"The Governor was clear that we must re-think how we manage the state’s real estate. The awarding of this contract is a significant step forward in DGS’ effort to carry out that mission,” said Acting DGS Director Ron Diedrich. “We look forward to working with the talented and experienced team that CB Richard Ellis has assembled to seek out the investors worldwide that want to purchase these prime office buildings and allow the state to tap the needed equity.”
CBRE has already begun marketing the properties to investors in the global capital markets. The 11 properties range from the 97,000 square foot Judge Joseph A. Rattigan Building in Santa Rosa, to the LEED Gold Certified Capital Area East End Complex in Sacramento and the 24-story, 863,000 square foot Elihu M. Harris Building in downtown Oakland.
“We are very pleased to be selected as the State of California’s advisor on this exciting disposition assignment,” said Kevin Shannon, CBRE Vice Chairman. “This will be the largest office portfolio available for sale in the nation currently. The offering is ideally suited for what the majority of investment capital is seeking right now which is stable leased product. We will conduct an expansive global marketing campaign appropriate for this generational acquisition opportunity, and we expect to attract tremendous domestic and international interest.”
In order to prevent any allegations of impropriety in awarding what would be one of the biggest ever CRE contracts, California conducted a test of 6 brokerage companies.
CBRE earned the contract for the brokerage services with the state after competing alongside five other companies. Each company was scored in multiple categories including: history of sales over $20 million over the past seven years; sales of at least $7.5 million over the last 10 years; experience of the proposed sales team; an interview with each bidder’s sales team; and the bidder’s proposal for its percentage of sales compensation. Commissions for commercial real estate sales range from approximately one-half of one percent for high valued properties to as high as 4% for smaller valued properties. Through a very competitive process, all of the proposals received by the State were under one percent and the winning proposal was substantially less than one-half of one percent, representing a good value for the State.
The status of this "exciting" portfolio sale will be closely followed by all who believe the bottom in CRE is still to come.
As a reminder the Department of General Services (www.dgs.ca.gov) serves as the business manager for the State of California, with more than 4,000 employees and a budget in excess of $1 billion. DGS helps state government better serve the public by providing services to state agencies including innovative procurement and acquisition solutions, creative real estate management, leasing and design services, environmentally friendly transportation, and architectural oversight and innovative funding for the construction of safe schools.
Here is a listing of all the office buildings included in the ongoing disposition.