Private developer withdraws from plan to convert CA state building into affordable housing

Last year, state leaders held a press conference alongside a private developer outside several buildings along Capitol Mall that had recently been marked for renovation. To help ease Sacramento’s housing crisis, the state-owned structures would become affordable residences.

But in August, the St. Louis-based developer selected to undertake the renovation, McCormack Baron Salazar, withdrew from the arrangement.

The deal — which the Department of General Services said was not a formal contract and did not involve the exchange of money — fell apart after the developer raised concerns about the initial adaptive reuse plan. The idea of maintaining the overall structure of the buildings while overhauling the interior for residential and commercial purposes, gave McCormick pause.

The three buildings in and around the Capitol Mall — the Employment Development Department headquarters building, the EDD Solar Building and the State Personnel Board Building — were slated to become nearly 700 residential units. DGS said it is evaluating other options for the buildings.

McCormick asked for “pre-development funding” to ensure the buildings could be converted, DGS spokesperson Monica Hassan said. In the event the buildings could not be adapted, the developer didn’t want to pay those out-of-pocket costs.

When it was clear the state didn’t have the funds for the adaptive reuse study, “the developer informed the State that they could not proceed,” Hassan said. The state said on Wednesday that it does not have “non-obligation” funds that can be paid in such cases, meaning if the adaptive reuse plan wasn’t possible, the developer didn’t want to pay out of pocket for the work it had already put in.

McCormick declined to comment and referred questions to DGS.

A DGS report published last week provided an update on the state’s endeavor to repurpose public properties, which Gov. Gavin Newsom ordered in 2019 as a means of addressing the ongoing housing shortage plaguing California.

Last week’s report detailed which state buildings DGS had identified as good candidates for conversion. Through 2023, DGS had selected 19 developers to lease the properties to, which was estimated to create over 4,400 new residential units.