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Court Stymies California Plan

ALAMEDA, Calif. — The California courts have placed another roadblock in front of the state government’s plans to sell 11 office properties to private investors, while entering into long-term leases to occupy the buildings.

The delay threatens the state’s ability to close the $2.3 billion deal, and leaves in limbo the status of about $1 billion of tax-exempt debt. The lease-revenue bonds used to finance many of the buildings will be redeemed or defeased if the deal closes.

Gov. Arnold Schwarzenegger wanted to close the deal before he leaves office Tuesday, but this week’s court decisions mean there won’t be any resolution of the case before late January.

The state cut a deal to sell the 11 buildings to a consortium of investors led by privately owned real estate firm Hines and private-equity firm Antarctica Capital Real Estate for $2.33 billion.

The deal was driven by the state budget crisis — it’s expected to net the state general fund about $1.2 billion to apply to this year’s budget gap.

The deal was announced in October. In November, opponents of the transaction filed suit, challenging it on several grounds, among them that the sale process illegally bypassed the Judicial Council of California, which, the lawsuit argues, has statutory authority over appellate court facilities such as those housed in two of the buildings to be sold.

A state trial court judge upheld the sale earlier this month, only to have an appeals court grant a stay that prevents the sale from closing.

That’s where the trail of the case gets even more complicated.

Because the San Francisco-based First Appellate District is housed in one of the buildings up for sale, the case was transferred to the Sixth Appellate District in San Jose.

The Schwarzenegger administration asked the state Supreme Court to intervene and allow the deal to close.

All seven Supreme Court justices recused themselves from the case because they also work in the same San Francisco building that is slated to be sold.

Seven appellate court justices were appointed to hear the case should it reach the high court.

On Monday, the Sixth District Appellate Court scheduled oral arguments for Jan. 26 and extended the stay that prevents the deal from closing.

The acting Supreme Court justices followed up Tuesday by declining the administration’s request to hear the case on an urgent basis, leaving it in the hands of the appellate court.

That dashed any hopes that the deal can close before Schwarzenegger leaves office.

It’s not clear what the governor-elect, Jerry Brown, will do about the deal should it land on his desk after he is sworn in Monday. His spokesman did not return a phone call Tuesday morning.

The 11 properties to be sold include centrally located buildings in Los Angeles, San Francisco, Oakland, and Sacramento, with tenants that include the California Public Utilities Commission and the Sacramento headquarters of the attorney general.

Schwarzenegger first proposed the sale and lease-back in May 2009. The Legislature authorized the process to go forward that July.

Some lawmakers subsequently criticized the proposal, but the plan was affirmed again when legislators adopted the fiscal 2011 budget.

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