New rendering without the spire.
Downtown high-rise project seeks funds quietly, won't offer pre-sales
Sacramento Business Journal - September 14, 2007
by Michael Shaw Staff writer
Sacramento's next condo tower has been quietly approved by the city, but the owners of the project don't mind a lack of fanfare, considering how other prominent condominium projects struggled during the past year.
There's no sales office yet, no billboards and no promotion of Cathedral Square -- a 25-story, 233-unit tower planned for the southwest corner of 11th and J streets.
The canceled Towers on Capitol Mall project and the seemingly lifeless Aura condo project grabbed the limelight in part because ambitious developers were selling units while at the same time trying to finance and build them. But Cathedral Square's developers, St. Anton Partners and the Cordano family, have been more comfortable under the radar, hoping to begin selling when the market favors them.
That means not anytime soon.
Financing the estimated $120 million tower will be a challenge, said Steve Eggert, one of the St. Anton Partners along with Peter Geremia. Eggert said they'll face the same hurdles as the earlier projects, including the housing slump and rising construction costs. And there's an additional issue of a credit crunch, which has led to less capital available for construction lending.
But they have avoided some of the pitfalls.
"We're not under the time pressure of an expiring land option," Eggert said.
Developer Craig Nassi of Denver had proposed Aura on Capitol Mall on land owned by another developer. Nassi has an option for the property. The Towers at Capitol Mall collapsed under rising construction costs but also due to a progressively turbulent relationship between developer John Saca and his equity partner, the California Public Employees' Retirement System. The partnership dissolved when a new deal couldn't be struck.
Eggert said he and his partners own the Cathedral Square property, now home to vacant buildings and a few small retail shops, and don't face internal pressure to deliver the project on a timeline.
He's looking to the sale of about 600 condos in those earlier projects as a sign that there's significant demand for luxury condos downtown.
The biggest challenge is funding.
"Up until the end of last year, there was abundant capital," Eggert said. "That has tightened up significantly."
The slowdown in capital markets is somewhat tied to the subprime meltdown because higher defaults have meant less money to distribute to other investments such as high-rises.
David Taber, president and chief executive officer of American River Bankshares, noted that assets tied to the subprime mortgage fallout are also being scrutinized more thoroughly by lenders. American River doesn't do high-rise construction lending, but he said the effect of tightening credit has been minimal on commercial projects.
"From my office in Rancho Cordova, I look out and see construction all around," he said. "Walls are being tilted up. ... The commercial real estate market is very good."
The Federal Reserve said last week that commercial real estate markets had experienced somewhat tighter credit conditions, but a number of banks noted that "credit availability and credit quality remained good for most consumer and business borrowers."
The Cathedral Square's developers will need to find a construction lender to provide about 75 percent of the cost and a mezzanine lender for any remaining portion that isn't covered by equity, which is about 20 percent, Eggert said.
Unlike previous projects in Sacramento, the developers won't be pre-selling units. Eggert and his partners would get little reassurance by locking in prices at the bottom of the market under contracts that could be easily canceled by buyers, he said.
Sacramento city officials are prepared to wait until the developers are ready.
"They told us basically they need time to prepare a plan for building permits," said David Kwong, Sacramento's planning manager. "They're waiting for a better market."
Brimming with confidence
The project has sailed through the city's planning process. Developers had originally planned to put a spire atop the building, mirroring Sacramento's Cathedral of the Blessed Sacrament nearby. But they canceled the spire after concerns expressed by the city's planning and design commissions, Kwong said. Any objection period for the project has passed, and the building doesn't need City Council approval.
The building is designed by San Francisco's Kwan Henmi Architects, which also is designing developer Saca's next attempt at a high-rise, The Metropolitan. That project is going through the approval process at Sacramento's design review and planning commissions, city officials said.
If built, Cathedral Square will feature many unobstructed views of the Capitol in 600- to 3,000-square-foot units, with penthouses, oversize windows, 9- or 10-foot tall ceilings and parking in a secured garage. The building will have a swimming pool, a fitness center and a clubhouse for residents. It has 12,000 square feet of retail space on the ground floor for a restaurant or shops.
While the developers are taking a different approach than their predecessors, there is the same confidence about delivering the project.
"I believe it will get built," Eggert said. "The condos will be delivered just as the next cycle is heating up."
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