Business & Real Estate

Sacramento Kings face $36 million in liens on marquee downtown hotel tower

For months, the Sacramento Kings have been promoting their showpiece hotel and condominium tower next to Golden 1 Center arena as the hot spot downtown for people to stay and play.

The project also has been a hot spot in another way.

The team and its development partners have been involved in a series of contract disputes since last summer with electricians, landscapers, iron companies, roofers, bricklayers, air conditioning installers and others who have worked on the as-yet-unfinished structure.

Last Friday, the project's general contractor, Swinerton Builders, filed a $36 million lien on the property, an indication that the project's subcontractors contend the Kings' development group, SG Downtown LLC, owes them that amount for work on the estimated $200 million project.

The 16-story multi-use tower at Sixth and J streets has been under construction for nearly three years. Much of it is now open, but construction remains unfinished and behind schedule on key elements. The Kings have billed it as a critical anchor, along with the Golden 1 Center arena next door, in a six-block entertainment district they are building called Downtown Commons.

The tower's main tenant, the Kimpton Sawyer Hotel, opened in October, along with Revival, a stylish upstairs nightclub that overlooks the hotel pool and the arena plaza below.

The Kings moved their business offices into the building recently, taking up the building's fourth floor. Punch Bowl Social entertainment venue opened last month and Urban Outfitters moved in from Arden Fair mall.

Forty-five upscale condominiums at the top of the building – priced as high as $4.1 million – were supposed to open late last year but remain unfinished. The Kings recently said they have sold 32 of the units, but have not filed any completed sales documents with the county.

The Kings and their partner JMA Ventures of San Francisco have repeatedly downplayed the disputes, saying they are not unusual on large projects, where the developer, the general contractor and subcontractors must haggle over finances when costs exceed the original contract amount.

"This is a large complex mixed-use project and there can often be disagreements on contract closeout that take time for the parties to resolve," JMA Ventures head Todd Chapman said in an email to The Sacramento Bee on Tuesday. "There continues to be a handful of subcontractors that we are negotiating closeout with. We have every expectation that we will complete those discussions in the near future. "

Chapman, in the email, said work is happening on the condos and residents are expected to start moving in this spring.

Patrick Whitehorn, a construction attorney with Last & Faoro in the Bay Area, said the general contractor on a project typically files a lien as a last resort or if a legal deadline is approaching, wrapping up the totals of all outstanding contract amounts in dispute.

“The general contractor is going to include all the amounts due to the subs and also what is owed to the general contractor,” Whitehorn said. “He is protecting himself. He is on the hook for the payment of all of those.”

In an emailed statement to The Bee this week, Swinerton President Eric Foster said his company is exercising its right to place legal liens on the property "as part of the final close out process and following resolution of a substantial portion of the subcontractor work on the project."

Foster said Swinerton and the Kings/JMA group had an agreement that allowed Swinerton to file the lien. He declined to elaborate.

William Porter, an attorney for several of the disputing contractors, said the issue is more serious than that.

Under state law, if not resolved, the lien process could lead to court-ordered foreclosure sale of the property.

Also, with legal claims hanging over the project, Porter said, the Kings could have trouble finalizing sales of the condominium units.

Two of Porter's clients have filed lawsuits in the last week, claiming unpaid work. One of them, Coffey Building Group of Placerville, put up specialty ceilings and acoustical wall panels in the Sawyer tower. It filed a $2.6 million lawsuit on Monday. The other, NMI Industrial, which designed and installed the hotel's upper deck swimming pool, filed a smaller lawsuit last week.

"We had to file the suit at this time in order to avoid waiving our client’s right to foreclose on the mechanics lien," Porter wrote to The Bee in an email Monday. "The natural outcome of a mechanics lien foreclosure lawsuit is the sale in foreclosure of the building where the work was performed, in this case the Sawyer Hotel and the shops and businesses therein.

"We are hoping to be paid rather than have the building sold."

Several subcontractors have reported the Kings and JMA group stopped paying many of its subcontractors last summer, asking some to accept 90 cents on the dollar, after the development team ran into a $6 million dispute with one its main concrete contractors.

That company, Pacific Structures of San Francisco, filed a $6 million lien against the project in late September, and later filed a lawsuit. Pacific Structures has since dropped the lawsuit and released the lien after coming to a settlement with the developers after mediation.

The Kings and JMA two months ago also began settling up with what appears to be about two dozen subcontractors, prompting those companies to drop their legal lien claims against the project.

Developer officials said they are continuing to work out payment deals with subcontractors. But at least nine other subcontractors have filed new liens since January against the project, claiming the development group owes them hundreds of thousands of dollars.

Related stories from Sacramento Bee