Some deals were just never meant to happen. In October 2010, cash-strapped California announced a $2.33 billion plan to sell 11 state office properties to California First, a partnership between Houston-based Hines and Antartica Capital Real Estate, involving Rich Mayo of Spyglass Realty Partners along with Chandra Patel of Antartica Capital plus some other unknown investors. Trumpeting the transaction, the Department of General Services (DSG) said the winning bid offer would net the state $1 billion to pay off bonds on the buildings and leaving more than $1.2 billion to shore up the state budget, thus eliminating the need for more program cuts statewide or tax increases. Under the arrangement, it said it would lease the buildings back over the next 20 years and would no longer have to maintain or repair them.
It was a popular arrangement, it seems, given that the state received some 30 bids for the entire portfolio, and as acting director of DSG, Ron Diedrich, said: “This sale will allow us to bring in desperately needed revenues and free the state from the ongoing costs and risks of owning real estate.”
However, following the announcement of the deal, the wheels seemed to come off. The Associated Press reportedly had people analyze the deal and found that the sale would cost the state more in lease payments than retaining ownership. The Legislative Analyst’s Office subsequently agreed leading to new State Governor Jerry Brown to cancel the deal.
However, cancelling the deal provoked California First to sue, and last month it was awarded $24 million in a settlement. The Schwarzenegger administration’s short-sighted plan to sell state buildings would have cost taxpayers billions of dollars and was a bad deal from the start,” said Brian Ferguson, a spokesman for DSG. “This puts an immediate end to a prolonged, frivolous legal dispute.”
Angela Agrusa, attorney for California First said: “It’s an excellent outcome.”