SACRAMENTO-California’s Department of General Services haschosen a partnership led by Houston-based Hines and AntarcticaCapital Real Estate LLC as the buyer for an 11-property,7.3-million-square foot portfolio of state office buildings that ithas been marketing as a sale-leaseback since earlythis year. The winning offer of $2.33 billion was oneof more than 300 bids and will generate more than $1.2 billion forthe state general fund as well as $1.09 billion to pay off bonds onthe buildings.

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The all-cash offer will be financed with “a typical debt andequity ratio with the general partners and investors providingapproximately 40% of the purchase price, and a major financialinstitution supplying the balance as a loan to the new owners,”according to a prepared statement by the state. The state willlease back the buildings from the Hines-Antarctica partnership,which is called California First, over the next 20 years. All ofthe leases allow the state to buy back any or all of the buildingsat any time during the 20-year term.

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The portfolio was marketed on behalf of the Department ofGeneral Services by a CB Richard Ellis team headed by Kevin Shannonin the South Bay office of CBRE in Torrance. Shannon notes that the$2.33 billion sales price far exceeds the $660 million originallyestimated. “Far from a fire sale, this was a stiff, multiple-offercompetition that generated favorable pricing for the state,”Shannon said. Ron Diedrich, acting director of the Department ofGeneral Services, said that the sale “will allow us to bring indesperately needed revenues and free the state from the ongoingcosts and risks of owning real estate.”

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In April, CBRE received more than 300 offers, includingindividually priced bids on each building, but the most aggressivepricing came largely from 30 offers for the entire portfolio.Portfolio buyers were given the opportunity to submit a secondround of offers on May 11. CBRE received 16 increased portfoliooffers, 11 of which exceeded the state’s $2 billion estimate of thevalue of the properties. Those 11 bidders were then invited tosubmit a “best and final” offer by May 21.

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Following the May 21 deadline, the Department of GeneralServices and CBRE evaluated the top offers and interviewed eachfinalist. Buyers were evaluated based on two primary factors, priceand certainty of execution, the DGS says.

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The portfolio will managed by Hines, which is the currentlandlord of more than one million square feet of State ofCalifornia leases, according to Colin Shepherd, Hines senior vicepresident. Hines’ partner in the deal, Antarctica Capital RealEstate LLC, is a venture led by California real estate veteran RichMayo of Spyglass Realty Partners, along with Chandra Patel ofAntarctica Capital, which is headquartered in Irvine, CA and NewYork City. There are also additional equity investors, according tothe DGS statement.

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The 11 properties include four in the San Francisco area, two inLos Angeles and five in Sacramento. The San Francisco areaproperties are the California Public Utilities Commission Buildingat 505 Van Ness Ave. in San Francisco, the San Francisco CivicCenter at 350 McAllister Ave. and 455 Golden Gate Ave., the ElihuHarris Building at 1515 Clay St. in Oakland and the Judge RattiganBuilding at 50 D St. in Santa Rosa.

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The Los Angeles properties are the Junipero Serra State Buildingat 320 W. Fourth St. in Los Angeles and the Ronald Regan StateBuilding at 300 S. Spring St. in Los Angeles. The Sacramento areaproperties include four in Sacramento: the Attorney GeneralBuilding at 1300 I St.; the Capital Area East End Complex at 1430 NSt., 1500, 1501, 1615 and 1616 Capital Ave.; the Department ofJustice Building at 4949 Broadway and the Franchise Tax BoardComplex at 9645 Butterfield Way. The fifth Sacramento area propertyis the Cal EMA building at 3650 Schriever Ave. in RanchoCordova.

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