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Facing renewed budget problems, the state is putting government property up for sale in hopes of raising hundreds of millions of dollars – either by selling the facilities outright, or selling them and leasing them back.

The leasebacks entail the sale to investors of 11 state properties with a total of 17 state office buildings. The structures include iconic state facilities and some just-constructed buildings, such as the East End Complex in downtown Sacramento, home of the education and health bureaucracies; the emergency services complex in Rancho Cordova east of Sacramento, the state attorney general’s headquarters at 13th and I Streets, and the Department of Justice complex at 49th and Broadway.

The buildings would be sold, then leased back over a period of years – perhaps 20 years – and the state personnel in those buildings would continue as they are now. After the leasing period, the buyers retain full control.

To the state, the advantage is that the government gets money up front, and may get out from under some maintenance costs, which would be carried by the new owners.

The state’s property manager, the Department of General Services, said it hoped to realize $600 million from the deal, a significant sum but far from covering a developing budget shortage expected to be in the $7 billion range for 2010-11.

“We believe it will be a better deal for the state and a potential investor, and more likely result in a lower rate if we can extend it (a lease) out longer over a period of time,” said DGS spokesman Eric Lamoureux. He added that the state is currently searching for a broker to handle the deal.

Periodically, there is a move in Sacramento to sell off surplus government property. While some high-ticket items might yield a lot in the property market, the amount the sales would yield pales in comparison to the massive debt the state is currently facing.  For example, San Quentin, previously rumored for sale, would bring in upwards of $300 million for its upscale Marin location. 

But in the face of the billions of dollars the state owes, the amount hardly seems to make a dent.

But times are tough and the state is looking to capture revenue any way it can.

Aside from the leasebacks, the DGS’s intention is to sell at least two properties to generate revenue. One is a former youth correctional facility in Whittier and the other is the Orange County Fairgrounds.

The first has been deemed a surplus property by the state and the state is accepting bids until Nov. 20. 

The fairground, on the other hand, is a high value asset for the state and they are hoping it will draw a lot of offers.  Offers on the fairgrounds will be accepted until Jan. 8 and DGS is hoping it will generate upwards of $100 million.

State properties are attractive to investors, particularly in a difficult real estate market, Lamoureux said.

“We believe that based on the analysis we did, with the real estate community in the shape that it’s in. We offer 100 percent occupancy, and in the private market there might be a 30 percent vacancy rate,” he said.

Read more on the Capitol Weekly Web site.