Is Sacramento’s housing market ready to grow up?
06/15/2014 12:00 AM
06/16/2014 7:42 AM
Today there’s just a fenced-off pit the size of a city block to remind residents of a time when Sacramento’s housing market seemed ready to reach for the sky and draw thousands of upscale buyers to downtown condominiums.
Toward the end of last decade’s housing boom, developers promoted ambitious proposals to raise residential towers that would dwarf the existing skyline and serve notice that Sacramento was becoming a major metropolis.
One developer got far enough along to drive pilings into the dirt for twin 53-story luxury condominium and hotel towers on Capitol Mall. Then, the housing bubble burst, flattening the bevy of high-rise proposals before any actually got off the ground.
In recent months, as the housing market rebounded and plans for a new NBA arena spurred interest in downtown real estate, developers and city officials again have been talking about soaring towers and million-dollar condos with views of the Central Valley.
“We’re actually quietly looking at some sites right now, because we do believe the market is coming back,” said Craig Nassi, the New York developer who at the height of the market in the mid-2000s planned to build a strikingly modern 38-story tower on Capitol Mall called Aura. It would have featured 265 units priced from $400,000 to $1.5 million.
The developer said he took pre-orders on 78 percent of the units, with buyers signing contracts and paying deposits, before the market imploded. Nassi’s architect, the renowned Daniel Libeskind, quit the project after complaining he wasn’t getting paid.
“We still have our lists of people who are highly qualified and highly interested,” Nassi said.
Skeptics say residential towers remain a dream in Sacramento, a historically low-rise and leafy city with plenty of land to build on.
“None of these projects is real unless there’s a crane in the sky,” said Sacramento City Councilman Steve Hansen, who represents downtown. “We’re dealing with aspirations. There’s no reality yet.”
Two proposals kicked off the latest visions of high-rise living.
One comes from John Saca, a shopping center developer and member of a prominent Sacramento family who tried to erect the 53-story Towers on Capitol Mall in the last housing boom. They would have been the West Coast’s tallest residential structures.
Saca said he, too, took deposits from hundreds of buyers before the project toppled in the housing crash in 2007. Saca’s crews demolished the old Sacramento Union newspaper building on Capitol Mall and prepared the site for the towers, driving hundreds of piles deep into the ground to support the 600-foot structures. Building stopped after Saca’s main equity partner, the California Public Employees’ Retirement System, said it wouldn’t invest any more money. The former construction site remains a weedy pit in a prime downtown location.
Now, Saca is back, pushing his vision for a 39-story combined condominium and hotel tower, to be called The Metropolitan, at the blighted northeast corner of 10th and J streets. The developer first proposed the plan, and the city approved it, during the recession.
Saca, who declined to comment for this story, took another step forward last week when he completed the $600,000 purchase of a crumbling city-owned building on 10th Street. He intends to demolish it along with several vacant structures he owns on J Street to build The Metropolitan.
‘Change the feel’
Another proposal generating buzz comes from Beverly Hills real estate investment firm Kennedy Wilson. The company’s Sacramento Commons project would include two 24-story residential towers, a 22-story hotel-condo complex and a series of midrise buildings on four downtown blocks bounded by Fifth, Seventh, N and P streets.
The area currently has a mix of three older apartment towers and clusters of low-rise units beneath a canopy of shade trees in a parklike setting. Kennedy Wilson’s plans call for knocking down as many as 200 two-story garden apartments but leaving the three existing residential towers on the block in place. It would add more than 1,000 housing units to downtown.
Some residents are threatening to fight the plan, which they say would destroy the livability and peace of their quiet superblock, where no cars are allowed. The project is scheduled for a city Planning Commission review on July 24.
Both The Metropolitan and Sacramento Commons would be just a short walk from the new $477 million Sacramento Kings arena. Some think that if a residential high-rise revolution is on its way, the Kings could play a leading role.
The team’s owners won city approval for a hotel and 550 residential units on the site of the semi-defunct Downtown Plaza shopping mall, next to the planned arena. Team officials are exploring the prospect of a high-rise residential and hotel tower at the site, city officials said.
The city expects the arena to enliven downtown, potentially making it more attractive to other high-rise developers.
“By bringing the arena and all of the other energy, it’s really going to change the feel of downtown and make it a more desirable place to live,” said Assistant City Manager John Dangberg.
One of the sites where city leaders would like to see a significant project is the hole in the ground at Third Street and Capitol Mall where Saca’s twin towers were supposed to go up. CalPERS controls the site now and expects to develop it one day.
“We have always believed that 301 Capitol Mall is one of Sacramento’s most important development sites,” CalPERS said in a written statement. “We also recognize the significance and progress by the city in the downtown redevelopment. CalPERS is committed to realizing the highest and best use of the land so it benefits our members and is complementary to the city’s goals.”
Sky-high prices a hurdle
Across downtown on J Street, the legacy of Sacramento’s deferred skyscraper dreams is on bleak display. The north side of the 1000 block features a row of buildings, purchased by Saca during the real estate boom for the Metropolitan project. They’ve been empty for years, awaiting the day when the market recovers enough for the project to make financial sense.
On the south side of the block, another row of shuttered buildings looms blankly over downtown’s main business thoroughfare. These buildings, which formerly housed shops and restaurants, were bought by Sacramento’s St. Anton Partners for a condominium tower that never got built. The firm hopes to sell the property to a hotel or residential developer that could realize the plan. A prior deal to sell it fell through, said St. Anton co-founder Steve Eggert.
“We have an approved plan there for a 24-story, 234-unit condominium project, plus ground-floor retail,” Eggert wrote in an email. “Those approvals are still in place. We do not plan to build it ourselves, but we would consider selling it to a condo builder. Several groups have expressed some interest. Several experts have also said our site is excellent for a hotel.”
Longer term, other potential sites for residential towers include the historic downtown railyard, where thousands of people are expected to live eventually, and Township 9, another large industrial redevelopment area along the American River.
Possibilities abound, but whether residential towers will rise in Sacramento anytime soon remains in doubt.
Experts say the biggest hurdle is the cost of building them and the sky-high prices that homebuyers would have to pay to make the projects profitable. Back when he was building The Towers, Saca complained that costs had soared by $100 million on his $500 million project, in part because the ground on Capitol Mall turned out to be more unstable than anticipated.
“The cost of construction for high-rises is tremendous,” said Dean Wehrli, who runs the Sacramento office of John Burns Real Estate Consulting. “It can be well over $1,000 a square foot.”
In Sacramento, he said, developers “can and would have to build for less,” but even $400 or $500 a square foot could be prohibitively costly in a metropolitan area where some of the most expensive residential real estate sells for about $300 per square foot.
Still, Wehrli said, “There’s no reason Sacramento shouldn’t have residential high-rises. Every large urban center has some demand for that type of product.” Walkability and urban amenities have proved to be powerful draws for young professionals and retirees, he said.
Midrises more realistic?
William Ayres, first vice president with commercial brokerage firm CBRE in Sacramento, said he supports downtown development and the new Kings arena but remains unconvinced that high-rise residential is a workable product in the capital. He said it’s more realistic to build the type of midrise housing and retail projects that have become a staple of downtown and midtown in recent years.
“I think we’re going to see a lot more base hits before we see some of these grand-slam projects move forward,” Ayres said. “Rents downtown are the best in the region, but we’re still not the Bay Area, San Diego or Los Angeles. Without those rents, it’s very hard to justify concrete-and-steel construction. Sacramento is still, in my opinion, a four- or five-story wood-frame construction town. That matches up with our rents.”
Others are more upbeat about the prospect for lofty abodes.
“I think we’re getting a lot closer than a lot of people would have first thought,” said Greg Paquin, a consultant to the homebuilding industry and president of the Folsom-based Gregory Group.
A relatively small proportion of suburban empty-nesters, including those from the Bay Area, may be interested in luxury high-rises, Paquin said. Well-off lawyers and lobbyists who live elsewhere but work in Sacramento are also potential buyers, he said.
Dangberg, who has worked for decades to foster development downtown, said a variety of factors will determine whether high-rise living emerges in Sacramento. Buyers will have to be willing to pay higher prices, and developers will have to make it worth the cost by offering amenities such as gyms and concierge services, he said.
Dangberg is optimistic the demand will materialize.
“Our focus going forward will be market-rate housing that attracts a population with a disposable income to support restaurants, art galleries, high-end stores and other things that can populate a downtown area,” Dangberg said. “The demand for that housing was there in 2006, and as the economy improves and we continue to improve downtown, the demand will return.”
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