States Use Commercial Real Estate to Fund Deficits
New York Times reports: Is it better to rent or to own?
The default answer for a long time — when real estate’s horizon seemed limitless — was to own. Lately some individuals and businesses have decided that maybe owning isn’t always better, especially when you have other pressing needs for cash, like paying off your creditors.
Now the idea has spread to some states with serious debt problems. In January the state of Arizona concluded a deal to sell to investors ownership stakes worth a total of $735 million in several state-owned office buildings, arenas and other properties — including the buildings housing both chambers of the State Legislature. Arizona will lease back the property from its new landlords, among them the mutual fund giants Fidelity and Vanguard, for 20 years, after which ownership will revert to the state. Arizona is planning another, smaller round of real estate sales in June. For fiscal 2011, which begins in July, the state is estimated to have a deficit of $3 billion.
Last month California received sale-leaseback bids on a portfolio of 7.3 million square feet of office space in 11 state-owned buildings. The Golden State Portfolio includes buildings in Los Angeles and Sacramento, as well as the San Francisco Civic Center, where the state Supreme Court sits. The deal had been expected to yield about $660 million in revenue for the state, after $1.1 billion in expected proceeds were used to pay off construction bonds. California’s deficit for 2010-11 is about $20 billion.
The risk of drawing unwanted headlines by selling state property may be one reason the idea has yet to take hold in other states that are short on money. A few years ago a spurt in the sale of state- and city-owned infrastructure, like highways and bridges, ended amid outrage that some of these properties were being sold to foreign investors.
Another reason for the absence so far of a rush to such deals may be relatively modest proceeds for states. Dan Fasulo, head of research at Real Capital Analytics, which tracks commercial real estate markets, said in an e-mail message: “There are many states that look at things like this during a crisis, but at the end of day the amount of money raised from such activities is a laughable amount when viewed from the context of the overall budget shortfalls.”
View the full article on New York Times: States Use Commercial Real Estate to Fund Deficits
Posted by: Nina Turner