How 2020 is transforming downtown Sacramento into the place city leaders always wanted
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It’s been a tumultuous year in downtown Sacramento. Coronavirus sent state workers away, leaving offices empty and sidewalks bare. Restaurants faltered and failed. Civil unrest hit downtown streets, prompting storefronts to board up.
But amid it all, 2020 has seen a surprising sign of growth in the Central City: Sacramento’s three-year housing construction boom has not slowed down.
Some in the industry say as much housing construction is underway in the urban core as last year. And Sacramento Bee interviews with a dozen people involved in the Central City say the virus is not killing downtown so much as it is accelerating a transition away from an office-centric work hub into the fuller live-work-play community city leaders have been talking about for years.
“We are poised to recover,” Mayor Darrell Steinberg said last week. “I have no illusions about the challenges and difficulties faced by many, including so many businesses. But (new housing) demonstrates that we ... will be quicker to recover than others.”
Hundreds of housing units are under construction and hundreds more are planned to start soon. Some of the new housing being built will be affordable to residents with lower incomes. However, much of it will be aimed at young, well-paid workers, including emigrees from the Bay Area. The enticements often include dog spas, bicycle parking rooms, pools, gyms and communal barbecue areas.
Visually, the transition is striking in some areas. Several blocks of glassy new apartments are sprouting at the northern end of the 16th street corridor, near the old Governor’s Mansion along a long-neglected corridor of old motels that once served as a state highway.
Farther west in The Railyards, the first housing project is finally underway, a likely precursor to many more. In the River District, formerly known as the Richards Boulevard industrial area, new developers at the large Township 9 site along the American River announced plans last week to begin slowly building what will be a half-dozen blocks with as many as 2,500 apartments cupped around a light rail station.
Austere Capitol Mall is getting its first housing project, an apartment to be called The Frederic (after Frederic Butler, lead architect for the state Capitol).
And the downtown housing boom is just one part of how the Central City is being remade. New state office towers, hotels and a renovated convention center should all be in place when Sacramento returns to a post-pandemic way of life.
Outside investors from Chicago, Vancouver and San Francisco are driving much of the growth as they bet on the capital city’s attractiveness post-COVID-19.
Some say they are betting COVID-19 will drive more Bay Area workers and companies here, both to downtown and to suburbs, because of cheaper residential and commercial rents, and more elbow room. Some of them will be teleworkers with Bay Area salaries staying in touch with colleagues via a daily diet of Zoom and Microsoft Teams meetings.
Bay Area transplants head to Sacramento
A new migration study by LinkedIn appears to corroborate that bet: Sacramento is third in the country behind Jacksonville, Fla. and Salt Lake City among metropolitan areas with the highest net gain of people moving here since COVID hit.
Notably, the San Francisco Bay Area had the second highest net out-migration numbers nationally. Sacramento housing builders say their website listings are getting a lot of hits from Bay Area-based residents.
LinkedIn’s analysts theorize that mid-sized cities like Sacramento have become more attractive as the pandemic unfolds for people who want cheaper rent and more space.
Architect Ron Vrilakas, who is working on a newly announced block-long apartment and mixed-use project at 16th and R streets next to the distinctive Ice Blocks neighborhood, says developers may seem to be taking risks, but are in fact looking past the pandemic, the bad economics and the unrest of 2020.
“You are investing in Sacramento of 2022 or 2023, not the Sacramento of 2020. Cities are resilient and come back from far worse than we are experiencing now,” he said.
Initially, in spring, housing construction stalled when COVID hit. “Everybody was spooked and took their foot off the pedal,” Vrilakas said. “By the time we hit May, things accelerated.
“Now, we’ve seen more start-ups than all of 2019.”
Vancouver builder picks Sacramento over SF
Among those betting on Sacramento may soon be Anthem Properties of Vancouver. The Canadian builder decided before the pandemic to make a foray into the United States. It chose the capital city’s downtown core for two apartment projects, including one on the notoriously disheveled 1000 J Street block. The company just demolished a row of decrepit buildings at 11th and J to make room for a seven-story, 153-unit apartment complex.
“As we move into the U.S., we see Sacramento as a market we can wrap our arms around more easily,” Anthem spokesman Riaan de Beer said.
When will his company build? Hopefully, he said, by the end of the year. But it may not happen until the new year.
“It’s been a very hard year,” de Beer said. “COVID is a challenge on every level. But underneath that, urban renewal is continuing, and COVID may be accelerating it. Short term, there are tough times ahead. But we’re going to move forward because we believe in Sacramento.”
That bullishness is leavened by some stark realities of 2020 that could leak into 2021 and beyond. They include nervous lenders, a limited workforce and COVID-caused supply-chain breakdowns that make it harder to get construction materials.
Roberto Jimenez, CEO of Mutual Housing California, is breaking ground on an apartment project called Lavender Courtyard, aimed at elderly, low-income members of the LGBTQ community. He says putting together the construction financing can be tougher during COVID, and labor and material shortages sometimes affect project timelines in an industry where time is money.
“So there are risks,” Jimenez said.
Downtown City Councilman Steve Hansen said projects that weren’t quite ready to go when the virus hit face tougher challenges. That includes a key housing project planned at the empty, fenced off Eighth and K streets corner, where developers had hoped this year to build apartments that would have created some much-needed oomph for K Street.
Instead, they are stuck trying to find new lenders.
“The question is how many that are conceived more recently will be able to go forward given the economic circumstances that could drag our city and downtown into one of the most dramatic recessions we’ve ever seen,” Hansen said.
Will teleworking continue after COVID?
One of the biggest unknowns in downtown: How many office workers will return from teleworking at home?
The governor’s office has said it likely will allow a percentage of state office workers to continue teleworking post-COVID, or do a home/office hybrid schedule on a long-term basis. The administration believes doing so can save money on capital improvement, rents and other office-related costs.
Prior to COVID, about 5% of the Sacramento workforce teleworked from home. When COVID is done, Barry Broome, head of the Greater Sacramento Economic Council, says he predicts that number will increase to 15%.
That means the downtown core will remain focused on offices, but with the addition of some younger, more entrepreneurial private companies whose workers will want to live within blocks of where they work.
“It will be a more dynamic, fluid workplace,” he said of downtown.
Amanda Blackwood, president and CEO of the Sacramento Metro Chamber of Commerce, said a more diverse downtown, less reliant on the state, creates a more mature and broader economy.
“A reliance on government to keep your economy growing is a tenuous place to be ... a double-edged sword,” she said. “Where you are seeing pockets of sustainability is places where people live, work and play, like midtown.”
Vrilakas says it creates a design problem. For several years, builders have been constructing smaller and smaller apartments, including many studio apartments and a few micro-units that are less than 400 square feet.
That trend, launched with the recent opening of the 19J apartment complex in midtown, has been a key factor in reducing construction costs and keeping a bit of a lid on rents.
If the next generation of downtown residents is working at least part-time from home, apartments may need to be bigger to include office space. If so, construction costs will go up – and that jacks up rents.
On the upside, Sacramento Community Development Director Tom Pace said new housing of any kind downtown will help support small businesses that would otherwise fail post-COVID and encourage new ones to open to serve a 24-hour, seven-day community of people who like a walk-and-bike lifestyle.
Lack of affordable housing downtown
There isn’t enough housing of all types to satisfy the region’s population growth rate. The rents were already too high pre-COVID for lower-income workers. And the Central City lacks housing at the low end of the rent scale for the baristas, retail clerks, service industry employees and entry-level state workers who represent the front-line workers in downtown’s struggling economy.
Real estate website Apartmentlist estimates rents in Sacramento have increased 1.4% since the coronavirus hit. That’s modest, but it comes as some downtown renters face evictions amid coronavirus and after a handful of years of some of the biggest percentage rent increases in the country.
By comparison, rents nationally have dropped 1.4% overall during the coronavirus, according to Apartmentlist.
Some new housing under construction is considered affordable for low-income people, but for the most part, the new generation of downtown housing has a cookie-cutter feel: six- to eight-story buildings with 100 to 200 apartment units, often at market rates out of reach for low-income earners.
A new 800-square-foot one-bedroom apartment can cost more than $2,400 a month. A modest studio may cost $1,400.
COVID has stalled what was going to be the biggest effort in years to address that problem. The city had planned to create a $100 million affordable housing trust fund with Measure U funds to help seed construction of affordable housing projects for lower-income workers. COVID, however, gutted the city’s operations budget, causing the city to use the Measure U funds, for now, for core city services instead.
City officials and affordable housing advocates agree, the new downtown will not be a success unless it evolves into a place where people of different incomes can live, work and recreate.
This story was originally published October 2, 2020 at 5:00 AM.
