Downtown's projects rise in face of downturn

Standing at the corner of 10th and K streets, in the heart of downtown Sacramento, there's little sign of the real estate free fall slamming the suburbs.

On one corner, dust rises from the construction site of a musical theater, restaurant and bar complex – The Cosmopolitan – scheduled to open in September in a former Woolworth's store. Across the street, crews are renovating another old department store into "office condos."

Corner by corner, the gradual metamorphosis of Sacramento's core continues to unfold, much as it has for the past decade.

"We're just percolating right along," said Leslie Fritzsche, city downtown development manager.

While developers predict activity will slow, they say it's unlikely to stop. Various forces are combining to keep the construction crews working.

Concern about traffic and global warming, combined with gas priced at nearly $5 a gallon, is driving interest in downtown, developers say.

"The region, along with the country as a whole, is starting to rethink how far away they want to be from the different destinations in their lives, with the goal of ideally living and working and playing in a more central kind of region," said Ellen Warner, a partner in David S. Taylor Interests, a prolific downtown developer.

The suburban lifestyle isn't about to disappear, but over time the central city will become an increasingly attractive option, agreed home industry consultant Greg Paquin, president of the Gregory Group in Folsom.

The growing collection of restaurants, shops and entertainment venues will create a draw of its own, he said. "It's going to be all this synergy."

Walkable projects sought

Public spending also plays a role. Increasingly, government at all levels is steering money to the central city – trying to foster transit-friendly, walkable places.

Millions of dollars in state and local funds will slosh into downtown in the next few years. It comes from property taxes captured by the Sacramento Housing and Redevelopment Agency and voter-approved state housing and transportation bonds.

Stan Thomas, developer of the Sacramento railyard, will get $47 million this year in state housing bond money to build streets into his proposed development.

Township 9, a planned development of 2,350 housing units in the Richards Boulevard area, is earmarked for $19.1 million. Another $23 million is destined for the Triangle area on the West Sacramento riverfront, which is approved for as many as 5,000 housing units and 2 million square feet of office space.

Downtown isn't immune to market forces. Projects opening now were mostly started during the real estate boom – and were too far along to stop when the bottom fell out. Housing has been particularly hard hit.

Downtown developers say they've had to heavily discount their product to move it, and they're making little, if any, profit these days.

"This is a depression in real estate; everybody who was really flying high isn't anymore," said developer Mark Friedman, who has sold 12 of his 26 Sutter Brownstones in midtown.

Friedman – whose family also owns Arden Fair mall – said urban developers are in better shape than those who placed all their bets on continued growth on the suburban edge.

Growth at moderate pace

Unlike the suburbs, downtown and midtown didn't experience a boom in housing in the past decade. They grew, but at a relatively modest pace, while the suburbs sprouted thousands of housing units every year.

Today, that slower growth has become an advantage: The central city isn't burdened with an enormous inventory of unsold or unrented properties.

"I'd much rather have my risk position be in downtown or midtown Sacramento than in the outlying suburbs," said developer Mike Heller, a partner of Friedman's whose portfolio includes downtown and suburban offices.

While huge condo towers touted for downtown didn't survive the market slump, other housing, office and entertainment venues did.

• At 10th and J, a 1920s, Beaux Arts office building will reopen as the Citizen Hotel, the city's first high-rise boutique hotel.

About the writer:

• Call The Bee's Mary Lynne Vellinga, (916) 321-1094.