Adithya Sambamurthy/The Bay Citizen

The California Public Utilities Commission Building is included in a controversial plan for the state of California to sell 11 office complexes to a group of private investors, then lease the space for 20 years

Most of the members of a shadowy investor group that agreed to finance the sale of tony state office buildings last year appear to have dropped out of the deal, and those that remain are tight-lipped about their involvement in the transaction, which is being challenged in court as an illegal gift of state assets to a group with political pull in Sacramento.

Departing Gov. Arnold Schwarzenegger tried mightily in his waning days in power to close the controversial sale of 11 premier properties.

The deal, now being challenged in a state appellate court, is in limbo. The new administration of Gov. Jerry Brown asked the court for a month to review the matter, and now arguments are scheduled to begin in February. The nonpartisan Legislative Analyst's Office reported in November that the deal would end up costing California taxpayers $6 billion in the coming decades, but the approximately $1.3 billion net proceeds of the deal are already factored in to the state's budget for the coming year. If the deal falls apart, the cash-strapped state's deficit will swell by another $1.3 billion.

The deal had been scheduled to close on Dec. 15. The legal challenge, brought by lawyer Joseph Cotchett and former San Francisco City Attorney Louise Renne, convinced the appellate court to issue a stay just 48 hours before the sale was to have closed.

The legal issues are complex. If the suit challenging the constitutionality of the deal fails, the state may be obligated to complete the transaction. The state's five-member Public Works Board — consisting of three Schwarzenegger appointees who voted yes, overriding the no votes of Bill Lockyer, the state treasurer, and John Chiang, the state controller — officially selected Calfornia First LLC as the winning bidder in November. If the state backs out, it could be on the hook for a sizable penalty payment to California First LLC, the winning bidder.

The identities of the people and companies behind California First LLC have been a mystery. And the increased public scrutiny and court challenges have done little, thus far, to shed light on them. The group declined to participate in the legal battle to close the deal, a stance that Renne finds "extraordinarily unusual. I think, frankly, they cannot stand to see the light of day on their transaction."

In official bid documents that California First submitted to the state Department of General Services between April 14 and Aug. 31, a shifting roster of partners is identified. One is CityView, the real estate development company founded by former Housing Secretary Henry Cisneros. Cisneros disavowed any involvement in the deal in late December, but did not respond to questions about when he had withdrawn.

When pressed on the issue of where, exactly, California First’s money is coming from, the DGS late last month provided The Bay Citizen with “due diligence” letters from three firms. Together, the firms said they had more than $1 billion to commit to the $2.33 billion deal. The balance of the deal’s funding is to be debt provided by J.P. Morgan Chase.

A look at the three firms that submitted the due diligence letters to the state in June raises even more questions.

Belgravia Capital said in its letter that it was committing approximately $200 million from its investment vehicle, REI New Horizons 1 LLC, and an unnamed “investor who has available funds for the transaction.” 

Belgravia’s chief executive is R.J. Brandes, a prominent Orange County businessman and society figure who also owns Blenheim EquiSports, which produces grand prix equestrian events on the West Coast. When asked about its involvement with California First in December, a man answering Belgravia's phone responded that the firm is no longer involved in the deal. When asked his name, he hung up.

The second due diligence letter submitted to DGS came from PRP Real Estate Investment Management, headquartered in Washington, D.C. Its president, Paul C. Dougherty, did not respond to queries in December about his firm’s involvement. But Dougherty did respond this week to a question about the June 7 letter he submitted to DGS, pledging $100 million to the California First deal.

Dougherty now says that his firm, which held the $100 million in its government property fund, “a comingled fund dedicated to investing in government-leased properties,” is no longer involved.

“We are out of it,” he said in an interview Monday. “We have not been part of that since this summer. We dropped out shortly” after sending the letter to DGS. Why did his firm drop out? “I’d rather not say.”

The third and last equity investor is Woodmont Capital Partners LLC, based in Bethesda, Md. The state of Maryland has no record of that firm in its business registry. Woodmont’s address, provided on its one-page submission to DGS, is in a building that caters to virtual companies.

Woodmont, whose letter was signed by managing partner Eron Sodie, pledged the bulk of the money to the deal: $836 million. It also cites an unnamed person or firm, “our investor,” as the source of funds.

Sodie did not respond to requests for comment in December, but he did answer a call on Monday at a phone number provided by a business associate who works for another, California-based real estate firm and who said he had no idea Sodie had an interest in the California First deal.

Sodie is alone, at this point, in not disclaiming any involvement in the deal. “I’m not going to comment on anything having to do with this transaction,” Sodie told The Bay Citizen.

In all three of the due diligence letters, the firms providing the capital offered, as would be expected, to provide additional information on their bona fides and their source of funds.

“Kindly execute a confidentiality agreement with our firm and we will share details,” presumably about the identity of the anonymous investor, as well as the “availability of funds,” Belgravia Managing Director Nik Chillar wrote to DGS.

Woodmont’s Sodie also offered to provide DGS with more information, including proof of funds.

However, DGS spokesman Eric Lamoureux tells The Bay Citizen that DGS never asked for any information or supporting documentation from the three equity investors after receiving their one-page pledge of funds in June. And it appears that DGS was never informed by California First that two of the three equity investors had backed out.

“In terms of our due diligence on California First’s equity investors, Belgravia, Woodmont and PRP indicated they had $1.136 billion in equity capital to contribute,” Lamoureux wrote in an e-mail Tuesday. “DGS determined the $1.136 billion identified was sufficient to execute the transaction at 40% equity ($932 million)/ 60% debt (JP Morgan).”

“The Department of General Services is continuing to move forward with our work on the litigation front and the Administration is currently reviewing the transaction,” Lamoureux wrote.

A spokesman for Gov. Brown has not yet responded to a request for comment.

Antarctica Capital, the private equity firm spearheading the California First deal, gives no indication of its operations or principals on its website. 

The three men identified as California First’s lead partners in offer letters submitted to DGS are resolute in refusing to clarify who is still involved in their deal and who would be providing the equity.

One of the partners, former Deputy State Treasurer Grover L. McKean, told The Bay Citizen last month that he was not really involved and only served as an advisor to the effort.

The two other lead partners, Richard Mayo, a former Pete Wilson appointee, and Chandra R. Patel, a real estate investor with offices in Orange County, New York and Irvine, referred all questions to their spokesman, Michael J. Bustamante, the former deputy chief of staff to Gov. Gray Davis. 

Bustamante called The Bay Citizen last week to explain that the high-powered political consulting firm in which he is a partner, California Strategies, is not involved in the California First deal. (The Bay Citizen had asked the firm if it would be filing disclosures regarding lobbying activities for California First. Mercury Public Affairs, another high-powered consulting firm, had filed such documents. Its partner, former Assembly Speaker Fabian Núñez, has been working for California First).

Bustamante said he was working with California First under the aegis of a company he owns on the side. When asked the name of his other company, he declined to answer.