Bankrupt State Of California Starts Selling Office Buildings, CB Richard Ellis Markets Largest Office Portfolio In America

Tyler Durden's picture

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.

BusinessWire reports:

"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.

 

LeasebackBuildings -

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Cursive's picture

Does this mean that TALF/TANF/WTF will be used to buy these CA government buildings and further support CRE values?  If so, SRS is going to $4.  Unreal.

ATG's picture

or URE to 13.75 iuntil the run out of taxpayer

money and Fed credit...

http://stockcharts.com/charts/gallery.html?s=ure

WaterWings's picture

You'll know it's really bad when Ahnuld sells the learjet.

Internet Tough Guy's picture

Selling deckchairs as the Titanic sinks.

Rainman's picture

Ca DGS has a budget bigger than the SEC. Eliminate that entire rat patch after the buildings are sold...er, given away..... and save another Billion.

Cali doesn't need a business manager of 4,000 paper pushers. It needs a conservator.

MsCreant's picture

CB Richard Ellis: "I see malls, everywhere malls, tall malls, small malls, mauls, mauls, mauls, mauls..."

Simon Property Group: "Eh, I just don't know..."

CB Richard Ellis: "Maaaaauls, goddammit, you fuckers, maaaauls."

Simon Property Group: "Say, uh, I think you need to calm down there."

CB Richard Ellis (weeping): Come on, how we gonna unload this shit! How m' I gonna get a commission? How is the state of California gonna make it? Once Cali gets a bailout, you know the rest will just line up for more. You know the gov is going to bail you out, man. We all know it.  Puhleeeeze!?

Simon Property Group: "Well..."

CB Richard Ellis (bright eyed, hopeful, in a soft voice): Malls?

Simon Property Group (resigned): "Yeah, sure CB, malls."

CB Richard Ellis (running around in circles): "Maaaaauls, goddammit, maaaaauls."

Simon Property Group (sighs): "Malls."

Anonymous's picture

Simon Property Group: "Eh, I just don't know..."
--------------------------
that was the funniest line for me, went downhill from there.

SWRichmond's picture

I will never forget this: sometime early in 2007, someone from (I think it was) the Retail Merchants Association of Greater Richmond was asked about the fact that RIchmond had twice the number of square feet of retail space as the national average.  He replied: "It's not that Richmond has too much retail, we just need more shoppers."

SWRichmond's picture

If only we could get fed.gov to start selling off assets.  Use your imagination.

MsCreant's picture

You know I love what you are trying to do here but the problem is that anything we sell, we will just end up backsopping (not a mispell) it some how and will end up owning it again.

WaterWings's picture

And tell the employees to get jobs in the private sector. Time to go over and polish that resume!

Anonymous's picture

The Federal Gov't has always sold their asses to the highest bidder ... oh assets, sorry.

Anonymous's picture

Richard Blum chairman is senator diane feinsteins husband...

Problem Is's picture

And the Carlyle Group investor Blum is quite a worm at that.

I am a novice when it comes to CRE... but since I live in the Broke Ass State of Calif allow me to interject as a long time observer of Broke Ass Arnold...

Liquidating chosen state assets into a collapsing CRE market means fire sale prices. A rip off for Calif tax payers that own the assets and windfall pickups for some well connected political backers... in Calif the big political bribers are in RE as well as Banking/finance and oil. See the Phil Angelides RE developer Angelo Tsakopoulos love affair...

Broke Ass Arnold is simply paying off some cronies on the way out the door. This is a Gordon Brown selling British gold at the market bottom move...

If any ZH readers are CRE experts and think this move makes sense, please explain it to me...

Rainman's picture

I'll take a shot at splainin' for a fellow Californian.

a) Cali desperate for cash NOW...although $600M is a net petty cash issue compared to the larger issue of another $20B budget hole.

b) Cali expects CA CRE value to trend much lower in '10 and '11 ( especially SAC and LA )

c) Cali expects to make serious employee head count reductions. Furloughs are not sufficient. Office consolidations and closings now underway.

d)  Private buyers assume or will receive term tenancy guarantees  , making the deal offers more attractive for the State ( for now ). When the headchopping gets up steam next year, the tenancy agreements become far less valuable to the State's interest.

e) If there are broken tenancy agreements, the cost to Cali in breaking them will be a manageable expense as opposed to the value trade of going to market 1-2-3 years from now.

f) This is just a first wave of CA CRE downloads and it must be kept " orderly ".

And all the other backdoor games you referred to are in play too.    

Problem Is's picture

Thanks for the savvy analysis Rainman... makes sense.

carbonmutant's picture

"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."

 

 

Daedal's picture

Maybe Arnold can put his signature on the buildings to help increase the resale value.

chet's picture

What an excellent time to be selling office space.  It's a seller's market out there.

Anonymous's picture

Exactly what I was thinking. Gov't timing is perfect as usual. And watch; if things get better for the overall economy over the next 4-5 years, CA will be right back trying to buy all that office space back (at a premium). Great mantra - sell low and buy high!

WaterWings's picture

Ahnuld: "Veel get Crayma to pump it up!"

Anonymous's picture

I would rather buy the printer of fed... If it would be sold... So I can print my own honest money... :-)

cannonball's picture

CBRE is the master of selling the listing agreement and then not selling.  Those CA markets are not exactly booming. 

I wonder how the San Quentin sale process is going.  The feds need to put some more bases on the auction block.  That would help CA. 

Argos's picture

"The offering is ideally suited for what the majority of investment capital is seeking right now which is stable leased product."

 

I'm sorry, has the definition of the word 'stable' been changed lately to mean bankrupct?  Isn't this like a junkie selling his house and then renting it back, just to get ONE MORE HIT?

Anonymous's picture

Whatever you do, make sure you don't even think about cutting bloated municipal payrolls, salaries, platinum benefit packages.

Under no circumstances should you address the real problems. Just keep selling assets.

Anonymous's picture

From one disgruntled California to another, Amen brotha. Having seen a "dynamic" govt office during a stint programming, I assure you the only things those people cared about were getting their many prescribed breaks during the day. The supv cared about you showing up on time and making sure you didn't look happy at your desk. Beyond that it was an entirely meaningless charade of pretending to work in the great Soviet tradition. Also, they had the premier 100% health coverage--and I've never seen a place with so many sick people.

By the way, shouldn't we just have a raffle to sledgehammer and/or set fire to the Franchise Tax Board campus. I can imagine millions willing to chip in 5-10 bucks to see that dump go up in smoke. Probably ends up making more money that way.

torabora's picture

FTB has a megachurch as a neighbor. Highway 50 needs an "exit" sign that says "death and taxes, take next exit"

Anonymous's picture

how do i bid for those building? I am sure if i bid 50% below market value I will get them. After all is goverment property.

Gordon_Gekko's picture

Welcome to the American Soviet Union, fellow Americans. Empty, useless buildings as a result of misallocations of capital caused by central planning. US=USSR.

WaterWings's picture

Yes, Komrade. Who cares about the history of the Weimar Republic anymore - we should all be reading The Gulag Archipelago.

BorisTheBlade's picture

Sale-leaseback deal with a bankrupt state doesn't necessarily represent a "stable leased product", once the sales proceeds from those properties spent, how Cali is going to pay for its rent - with IOUs again?

B9K9's picture

This is how the existing federal republic will cease. It all comes down to money; more specifically, the ultimate ability to control counterfeit receipts aka "fiat".

Once the respective states start issuing their own script, whether it be IOUs or some other forms of in-state in-kind payments (PIK-IS?), artfully managed to skirt Constitutional prohibitions, we will finally start the great unravelling.

Forget silly things like secession, armed rebellion, national "police" forces, etc, etc. Unlike emotional Hollywood endings, bankruptcy proceedings are drab, low-key affairs. More akin to the DMV - depressing, monotonous & inescapable.

Once the states' get control of their respective finances, no one is gonna want any part of the nat'l debt & unfunded liabilities (S/S, etc). A well know phenomenon takes place in  social species, where the community cuts loose the weak & injured after it is clear any further attempts will not only fix the problem, but put survivors themselves at risk.

Thus the flight to self-preservation.

Problem Is's picture

Is that the point at which the underground economy accelerates to avoid oppresive taxation?

... Peasants begin selling excess fruits, vegtables and hand made goods from their serf plots?

... A black market in all other goods arise?

... Serfs refuses to accept the state issued ruble?

... Serfs accept only barter goods or... in the case of ammo and weapons silver blanks in payment?

...NEP, the New Economic Policy? Hey it was Lenin approved.

Gordon_Gekko's picture

The status of this "exciting" portfolio sale...

Yeah, about as exciting as a fucking graveyard.

Anonymous's picture

I have noticed that you get cranky on down gold days.

MsCreant's picture

I have noticed posts like these typically come from Anons.

Gordon_Gekko's picture

LOL, never realized I was so popular!

MsCreant's picture

They may be necrophiliacs, which would explain a lot.

carbonmutant's picture

I wonder if this is bag money for a state bailout from the administration?

Anonymous's picture

I watched Real Housewives of the OC last night and I genuinely felt dirty afterwords.

Not like watching filthy internet pron dirty.
Like genuinely spiritually ugly kind of dirty.

Is that really how people are out there?

-MobBarles

Rainman's picture

OC is John Birch gone bipolar. If you're around the natives long enough, it almost appears "normal".....but genuine normal is greatly outnumbered. Thus, the abnormal eventually becomes normal if you hang around there too long. And the genuinely normal can't wait to get the hell out of there.

This is why Nixon chose San Clemente for the Western White House. Born and buried in Yorba Linda. Native OC. 

Gimp's picture

With businesses leaving Cali by the bus loads to avoid excessive corporate taxes and endless litigation who on earth needs office space in a virtual world except for.....wait for it ...the government bureaucrats. Looks like a round robbin sale leaseback solution..

Anonymous's picture

I wonder how CBRE won that bid?

http://en.wikipedia.org/wiki/CB_Richard_Ellis

Key people: Richard C. Blum, Chairman

http://en.wikipedia.org/wiki/Richard_C._Blum

Richard C. Blum is an investment banker and the husband of United States Senator from California Dianne Feinstein.

torabora's picture

They OWE hundreds of million$$$$ on these things and are going to "sell" them????WTF??? There is million$$$$ of deferred maintenance??? They are going to pay rent to stay in a building...how can they come out ahead by selling it and then renting it back??? That HAS to cost more.

I smell a big Pay Day candy bar for the corruptocrat legislatures friends.

Anonymous's picture

Maybe CB Ellis can convice Jennifer Granholm here in Michigan to sell some office space or assets to the lowest bidder.