Saucony Kinvara 8

Governments usually sell unused properties, but that won't cut it with big money investment funds.

Last month, it auctioned a 150 acre property best known as the site of the Orange County Fairground. The highest bid came in at $56.5 million about half as much as what the state initially thought the property would be worth. Officials are still weighing whether to approve the deal.

Saucony Kinvara 8

This month, the state will begin marketing nearly 9 million square feet of office space it values at around $2 billion.

´╗┐States Turn To Commercial Properties for Cash

In recent weeks, Arizona invited investors to buy bonds secured by several landmark state government buildings. Connecticut, also facing budget woes, has made plans to bring in $60 million over the next two years from real estate sales. But California, with a gaping $20 billion budget gap projected through June next year, has the most ambitious sell off plan yet.

Saucony Kinvara 8

The sales come at a time when the commercial property market is coming off its worst year in decades. Prices are down 40 percent from their peak in 2007 and are expected to fall further this year.

as many properties, Saucony Kinvara 8 fetching $1.5 billion, in 2008, when the commercial real estate downturn was just beginning to gain momentum.

Saucony Kinvara 8

Saucony Kinvara 8

The state wants to part with 17 buildings and negotiate 20 year leases at today's rental rates with the new owners, said Eric Lamoureux, spokesman for California's Department of General Services.

, a broker with CB , the firm handling the sale, anticipates the state will draw competitive bids despite the fact that it is selling in a depressed real estate market. Still, investors are likely to get the better end of the deal.

Among the 17 buildings California is selling are two in San Francisco that house the California Supreme Court and a federal appeals court, among other tenants. Arizona, meanwhile, put up both chambers of its state legislature as collateral.

State and local governments are grappling with budget shortfalls and some are eyeing their office high rises, prisons and even capitol buildings as assets to be sold or mortgaged for some fiscal relief.

Arizona, hoping to make a dent in its $1.4 billion budget deficit, issued municipal bonds at $5,000 a piece against the value of several properties.

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Still, that property was a sideshow to the mammoth portfolio of office buildings the state will begin marketing on Feb. 22.

These days, that's not far from the truth.

Lawmakers aren't actually selling the buildings, however. They're using an approach, called a sale leaseback transaction, when an asset is sold to a bank Saucony Shadow 6000 Dirty Snow

Government has a history of selling real estate at an inopportune time, said Dan Fasulo, managing director of Real Capital Analytics.

An attraction for potential buyers is that both states are looking to continue to occupy the buildings for at least 20 years. office vacancies are projected to climb as high as 19 percent by the end of the year.

Saucony Kinvara 8

The offering last month raised $735 million in two days. Some of the bonds were purchased by individual investors, but the majority were snapped up by mutual funds, including Fidelity Investments, The Vanguard Group and Northern Trust, said Alan Ecker, spokesman for the Arizona Department of Administration.

"Usually there's a crisis and part of that crisis is caused by an economic downturn, which means they wind up getting lower prices when they do actually sell," he said.

worth $4.2 million last year, Fasulo said. That doesn't include government auctions of seized properties. Governments sold about twice Saucony Ride

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That bodes well for investors looking for a good deal, but not for state coffers.

Saucony Kinvara 8

Saucony Kinvara 8

trustee and leased back to the state for about 20 years. This enables the state to raise money upfront and pay it back over a period of time, like a loan. Once investors are paid off at an interest of about 4.5 percent the state recovers the deeds to its properties.

Saucony Kinvara 8

Now Arizona wants to try again and put up more buildings to raise $300 million. California is going in a different direction.

Federal, state and local governments sold 24 commercial buildings Reebok Peach Trainers

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