California Selects Steward for Sale-Leaseback of State Buildings

California First, LLC, a consortium led by Hines and international private equity firm Antarctica Capital Real Estate (ACRE), announced recently that it has been selected as the winning bidder by the State of California to purchase and leaseback 11 of the state's office buildings. The decision follows a comprehensive year-long process and was made public as part of the state's final budget discussions.

In July 2009, the California legislature authorized the state’s Department of General Services (DGS) to proceed with a process to select an investor or group of investors to sell and leaseback the office buildings in order to raise revenues to help offset a multi-billion budget shortfall. More than a year later, California First’s proposal stood out from more than 300 bids received by DGS.

As a part of its proposal, California First offered a market-premium price of $2.33 billion, far exceeding initial State projections by more than a half-billion dollars. It will allow the state to reduce its bond indebtedness of over $1 billion, after paying off existing bonds. California First’s proposal also allows the state to re-purchase the properties through a right of first refusal. The sale-leaseback solution is intended to address the California’s fiscal crisis long-term.

The portfolio purchased by California First’s consortium of institutional investors will be professionally managed by Hines, a privately owned international real estate firm, which currently owns more than 1 million square feet of the State of California’s leases.