City of West Sacramento

West Sacramento officials hope transformation of the Bridge District will continue with the building of a Marriott Hotel such as this artist's rendering on the banks of the Sacramento River.

Marriott Hotel may tuck in near Raley Field

Published: Monday, Mar. 18, 2013 - 4:38 pm | Page 1A
Last Modified: Sunday, Oct. 13, 2013 - 1:18 pm

A decade ago, it was Raley Field baseball stadium. Before that, West Sacramento helped build the iconic ziggurat office building. Now, the ambitious and fast-maturing city on the banks of the Sacramento River is pursuing a high-rise waterfront hotel.

Officials propose that the city float $30 million in bonds to help build a Marriott Hotel and conference center overlooking the Sacramento River just south of the Tower Bridge.

The rest of the money for the $131 million project would be provided by a Dallas development company.

With 343 rooms, the hotel tower – perhaps 11 stories – would mark another major step for West Sacramento as it works to transform its riverfront from a gritty industrial district to a community of office buildings, townhouses, shops and nightspots within walking distance of Old Sacramento.

City officials and private developers are honing in on final terms and will brief the City Council on Wednesday.

The hotel, which could be under construction next year, would sit on a bluff a few yards from Raley Field.

Until recently, the Bridge District was a mish-mash of industrial plants, warehouses and rail spurs. But in the past three years, the city and developers have spent tens of millions of dollars to remake it into a clean slate of freshly paved streets, ready to be lined with new buildings.

"It is just a stunning site," said Ray Garfield, president of Garfield Traub, the national real estate investment firm hoping to partner with the city. "The river, the ballpark, the proximity to Old Sacramento, downtown, the state Capitol, all are strong indicators for great opportunity."

The hotel possibility has city officials rubbing their hands.

"This could be a transformational project that could activate the waterfront and ignite the Bridge District," Councilman Chris Ledesma said.

Despite the hotel's potential, city officials say they have concluded it won't get built without a major public subsidy.

No major hotel in downtown Sacramento has been built in the last 25 years without government participation. That includes the Hyatt Regency, Sheraton Grand, Citizen and Embassy Suites hotels.

Hotels in Sacramento have never been able to command high room rates, industry experts say, because their guests often are affiliated with state government, which limits per diem for travel. Yet the cost of building a high-rise hotel downtown is much greater than for low-rise suburban hotels spread out on cheaper land.

"Downtown, if it were pure private capital, it would never get done," said Tom Callahan, a hotel industry expert at PKF Consulting in San Francisco, which has done work on the West Sacramento project. "The market is not strong enough to support the hotel on its own."

The West Sacramento hotel's planned 20,000-square-foot conference facility adds substantially to its cost, industry experts say.

A similar situation prompted the city of Sacramento to turn to a novel financing strategy on the Sheraton Grand Hotel more than a decade ago: The city sold bonds to finance the project, and became the hotel's initial owner. It later sold the hotel at a profit.

West Sacramento officials talked a few years ago about fashioning a similar deal, in which the city would own the entire hotel. But with the hotel market coming out of the recessionary doldrums in the last year, city officials say they think they can get the project built with dual ownership. A limited partnership set up by Garfield Traub would own the hotel portion of the project, and the city would own the conference center.

Garfield Traub specializes in public-private partnerships on convention hotels, as well as performing arts centers, courthouses and schools.

If a hotel deal is signed, city officials say they expect to sell up to $28 million in revenue bonds for most of their share. They will pay those bonds back with hotel taxes, lease revenue and hotel property tax revenue. The city would add a 2 percent fee to room rates at the new hotel.

The deal notably puts West Sacramento's general fund – its main annual operating account – in the line of fire. If revenue from the hotel isn't enough to cover annual debt, there is a chance the city would have to tap that general fund.

Officials say the financing plan is similar to the successful 1999 deal the city engineered to get Raley Field built. In that deal, the city, along with Yolo and Sacramento counties, used general funds as financial backstops, but have never had to dip into them.

A very different scenario is playing out in Stockton, a city in bankruptcy protection after a series of bad financial moves, including burdening the city's general fund with bond debt for waterfront development and an arena.

West Sacramento city officials say their hotel deal would be constructed with reserve funding sources to be tapped in an emergency ahead of the city's general fund, as a way of minimizing general fund risk. Early projections show the city could make tens of millions of dollars on the deal over time if hotel rates and occupancy meet projections.

The project would be one of the first major development ventures in the area since the state eliminated redevelopment funding last year.

Lack of redevelopment money "is one reason this project (financing) is so complicated," West Sacramento Mayor Chris Cabaldon said.

Downtown Sacramento developer David Taylor, who co-developed the Sheraton, said the West Sacramento project offers an example of the creativity cities will have to employ if they want to continue investing in their central cores without the earmarked property taxes that redevelopment provided.

"There is a big need and very little money to fill it," he said. "There is a lot of concern among those who like to see smart growth in urban areas. It's the reason Sacramento began to look at its parking fund as a source of revenue last year" to build an arena or other downtown projects.

Callahan, the hotel industry expert, called the plan a well-conceived project, with decent market timing, but said there's no guarantee the deal will get done.

"The market is coming back, but it costs a ton of money to build," he said. "They have to see if they can pull the money together." Call The Bee's Tony Bizjak, (916) 321-1059. Follow him on Twitter @tonybizjak.

© Copyright The Sacramento Bee. All rights reserved.

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