JV Proposes Tax Exempt Financing to Fund $2.2 Billion Sale Leaseback of State of CA Office Buildings

NASDAQ.com - May 21, 1010

AEW Capital Management and the California Municipal Finance Authority have submitted a unique bid to acquire an 11-property portfolio of office buildings from the state of California. The partnership, which is one of seventeen potential buyers that submitted second-round bids, gave the only proposal that aims to keep the properties in the public domain. The portfolio is valued at about $2.2 billion.

In the proposal, CMFA would acquire the portfolio via tax-exempt lease revenue bonds that would pay about 5%. AEW, which would not put any capital into the transaction, would act as the asset manager while a trustee would be appointed to receive the lease payments on behalf of the bond holders. A brokerage firm would be hired to manage the properties.

This structure would allow the proceeds from any future sale to stay in the public domain. At the time of a sale, roughly 50% of proceeds would be given back to the CMFA's constituent local authorities and the rest would go to various affiliated non-profit organizations.

The rest of the offers were for more standard sale-lease backs.

Although there is a 2004 California law that prohibits state-affiliated public entities from assuming additional long-term debt, CMFA is a Joint Powers of Authority that is focused on financing economic development and charitable initiatives for local authorities and therefore is exempt from the law.

A response is expected this week, with the state selecting three to five final bidders. If AEW's proposal were selected to go forward, the individual jurisdictions where the properties are located would have to approve the transaction. Sphere: Related Content