Deals

Hines, Antarctica buy California state buildings for $2.3bn

More than 300 bids were submitted for the sale-leaseback of 11 state buildings, with Hines and Antarctica Capital bidding almost four times the original sales estimate.

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Hines and Antarctica Capital Real Estate have bought 11 landmark properties from the State of California in a $2.33 billion sale-leaseback deal.

The deal will see Houston-based Hines and Irvine, California-based Antarctica – along with other unnamed equity investors – invest 40 percent equity, according to a statement from California’s business manager, the Department of General Services. California will be allowed to buy back any or all of the buildings over the next 20 years.

The venture between Hines and Antarctica, known as California First, faced tough competition during the bidding process, with more than 300 offers submitted to Richard Ellis. The brokerage said the most “aggressive pricing” came largely from the 30 offers made for the entire portfolio of 11 buildings. When a second round of bidding was held in May, 16 of the portfolio investors increased their bids, including 11 to more than $2 billion. Best and final bids were submitted on 21 May.

CBRE vice chairman Kevin Shannon said the winning bid “far exceed[ed] the $660 million originally estimated. Far from a fire sale, this was a stiff, multiple-offer competition that generated favourable pricing for the state.” DGS said it selected Hines and Antarctica based on “price and certainty of execution”.

DGS said $1.2 billion of the proceeds would be used for the California state general fund, with $1.09 billion used to pay off bonds on the buildings. The deal is expected to close in the fourth quarter.

California put the 11 state properties, comprising 7.3 million square feet of space, on the market in February, as it sought to cover its budget shortfall. Among the properties marketed were San Francisco’s civic center; California’s Department of Justice building in Sacramento; the Ronald Reagan State Building in Los Angeles and the Elihu M Harris Building in Oakland.

Antarctica Capital Real Estate is led by Rich Mayo of Spyglass Realty Partners, along with Chandra Patel of Antarctica Capital. Hines declined to comment further.