Business & Real Estate

State tax agency looking at Capitol Mall site for new headquarters

New hope for vacant downtown Sacramento lot once planned for high-rise condos

State tax agency eyes CalPERS-owned parcel near new Kings' arena
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State tax agency eyes CalPERS-owned parcel near new Kings' arena

The state Board of Equalization is in discussions about moving its 2,200-employee headquarters to a new mixed-use tower that could be built in the infamous “hole in the ground” at Third Street and Capitol Mall in downtown Sacramento.

Proposals to move BOE’s offices to the site are in very preliminary stages. But if a deal could come together, it could solve two major headaches for two state agencies.

It would provide a new home for BOE, whose current 23-year-old office on N Street has been plagued by leaking windows, toxic mold and so many other maladies that employees have sued the state. The state has spent $60 million trying to fix the problems and is scheduled to pour another $30 million into the building this spring.

At the same time, relocating BOE to Third and Capitol could be a major boost for CalPERS, which owns the now-vacant block and has been anxious to build something on the site. The California Public Employees’ Retirement System spent $60 million bankrolling a local developer’s failed effort to build a pair of condo-hotel towers on the parcel nearly a decade ago, before the housing market crashed.

CalPERS halted work on the condo project in January 2007 and took control of the site from its development partner, John Saca. The fenced-off block is known in real estate circles as the “hole in the ground” and remains a mocking reminder of the crash. Its location adjacent to Golden 1 Center, the new Sacramento Kings arena, has also made it a tempting property as the downtown real estate market heats up in anticipation of the arena opening in October.

Fiona Ma, a BOE board member who has championed the agency’s search for a new headquarters, said she met in mid-December with officials from CIM Group, the Los Angeles real estate firm that’s managing the Third and Capitol site for CalPERS. CIM officials showed her conceptual drawings of a mixed-use project that would include condominium units on the upper floors, office space in the middle and retail on the ground floor. The preliminary plans call for a tower in the 20- to 30-story range.

“They are looking for long-term tenants, anchor tenants, and wanted to see if BOE would look at the site,” Ma said.

For BOE, “it’s a possible solution,” she said. The agency administers the state sales and use tax.

Councilman Steve Hansen, who represents downtown, said the site is “shovel ready” and has the entitlements needed for construction to begin.

“If a match can be made between BOE and CIM, it’s a match made in heaven,” he said.

CalPERS has previously said it expects to build a tower at Third and Capitol that involves some blend of residential, office and retail space. The pension fund declined to comment on the BOE discussions, referring reporters to CIM. In a prepared statement, CIM wouldn’t confirm the discussions with BOE but said, “Needless to say, since the state of California is the largest tenant and employer in the region, we would seek points of view within state government.”

The Department of General Services, which manages state real estate, is aware of the discussions but is waiting to hear more. “At this point, there’s no proposal,” said department spokesman Brian Ferguson.

The project would further spark the downtown real estate market. Last week Gov. Jerry Brown proposed building two other state office buildings in the central city.

A potential sticking point on a BOE relocation could be the remaining bond debt on the agency’s current headquarters. Ma said BOE wants the developer of the new site to assume the debt to ease the burden on the state. The debt would probably total around $20 million or $30 million by the time the Capitol Mall tower gets built and the agency is ready to move, said Ma’s chief deputy, Jim Kuhl.

Dale Kasler: 916-321-1066, @dakasler

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