One of the most blighted stretches of downtown Sacramento received a long-awaited boost on Tuesday night, when the City Council approved a complex financing plan for a major development in the 700 block of K Street.
The development team behind the project said it expects to begin construction on the $51 million housing, retail and entertainment project early next year. Work could be completed by late 2016, soon after the expected completion of a new sports arena for the Sacramento Kings just one block away.
“We’ve said from the beginning that what happens in the blocks around the arena is critical so we can extend that experience for people before events and for those staying later,” said Michael Ault, executive director of the Downtown Sacramento Partnership. “Hopefully this is a sign that a lot of things around (the arena) will soon be taking place.”
Development firms D&S and CFY are planning to build 137 units of housing on the block. Leslie Fritzsche, a senior project manager with the city’s economic development department, said the project would bring “the first new residential (units) to K Street in decades.”
The historic storefronts lining K Street would be converted into a row of shops and restaurants.
Bay Miry of D&S Development said the team is “still a ways out on announcing specific concepts” for the block. He did say that the developers are “proposing market-rate housing, affordable housing, underground parking and a significant amount of retail – all in one-half block.”
The development plan was originally approved by the city in 2012, before work began on a new arena at the site of Downtown Plaza. Ali Youssefi of CFY said, “the addition of the (arena) next door complements our existing plans for high quality and unique restaurants and retail.”
“New opportunities have obviously presented themselves given our proximity to the arena, and we will explore those new concepts as we complete leasing of the remaining spaces,” he said.
Councilman Steve Hansen, who represents the central city, said in an interview he is hopeful that developing the 700 block of K Street “puts pressure” on plans for other empty areas of downtown.
A plan for the 800 block of K Street has stalled and city officials have placed a great deal of emphasis on trying to find a use for an empty lot at Third Street and Capitol Mall, where a developer had planned to construct twin condo towers nearly a decade ago. Hansen also mentioned the Marshall Hotel at Seventh and L streets as a focus.
“Hopefully, we can get those other projects going,” Hansen said. “I think (developing the 700 block of K) narrows the amount of things that need to get done and it takes the most complicated project off the table.”
Tuesday’s vote was a major milestone in what has become a years-long odyssey. The city of Sacramento spent years – and millions of dollars – acquiring properties on K Street in the hopes of giving them to developers able to turn around the downtrodden stretch.
In 2010, the City Council agreed to hand control of the 700 block to CFY Development and D&S Development, as well as award the developers redevelopment subsidies. But the state Department of Finance later ruled the city and the developers had not agreed upon a financing plan before the state shut down redevelopment agencies in 2011, placing the project in jeopardy.
The city sued and the lawsuit was settled this summer. As part of the agreement, the city agreed to forgo $2.6 million in redevelopment dollars it had approved for the project, but could transfer the properties to the developers. The loss in redevelopment subsidies, combined with increases in construction costs, led to a $7 million financing gap for the project, city officials said.
The financing plan approved Tuesday addresses that gap. The city will contribute $2.1 million toward the shortfall, most of it from property taxes the city collects that previously had gone to redevelopment agencies.
CFY and D&S are making up the rest of the gap with private dollars. The development teams are covering nearly $40 million toward the project. Most of the remaining $13 million in public money is from affordable housing subsidies.