California Plans Sale of Buildings to Raise Cash
The problem is, selling anything when a gun is to your head is never really a good idea. And, right now, California has sort of a nuclear missile aimed at it.By putting these buildings up for "sale," California is ripping itself off.
You may have noticed I put quotes around the word "sale" (there, I did it again!). That's because typically when states unload their properties for purposes such as raising short term cash, they are really engaging in a transaction called a sale-leaseback: the building is sold and leased back to the state which continues to occupy the property doing business as usual for 20 years. At that point, the state gets the deed to the building back.
Politicians in Sacramento have a long history of not being able to deal with state budgets. Most state workers here already are forced to take three days off without pay each month to save the state money.
And here in Los Angeles, the state's largest city (and second largest city in the nation), the mayor has ordered the elimination of 1,000 city positions while the City Council tries to figure out what to do next. This past Friday, the mayor even suggested more cuts are probably needed in the months ahead.
Selling property at fire-sale rates, while helpful in the short run, may not be so helpful in the long run.
Talking about how governments tend to sell assets at bad times, the managing director of Real Capital Analytics, Dan Fasulo, tells the AP, " Usually, there's a crisis and part of that crisis is caused by an economic downtown, which means they wind up getting lower prices when they do actually sell."
Case in point: When California recently tried to unload the the Orange County Fairgrounds site at auction, the highest bid ($56.5 million) was about fifty percent less than what the state had hoped to fetch. This shouldn't be surprising to state officials: commercial property prices are down an estimated 40 percent from three years ago.
In case you are wondering, among the buildings California hopes to sell to investors are two that are home to the state's supreme court. Now I ask you, is this some sort of perverted poetic justice?
In all the years I have lived in and covered California's political and economic issues (that would be 15 to be exact), I have seldom known the state to actually make the right fiscal decisions. The proof that I know of what I speak is the fact that we are in this protracted fiscal mess which, I hasten to add, predates, to some degree, the national economic downturn that began in 2007.
So, mark that date I mentioned down. And, if you have some loose change in your pocket, maybe you'll want to buy a building or two for sale here. They'll be cheap!
Charles Feldman is a journalist, media consultant and co-author of the book, "No Time to Think-The Menace of Media Speed and the 24-hour News Cycle." He has written about real estate related issues for several years.