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Originally Posted by Los_Lobo
Condo high-rise seeks subsidy
Proposed $11 million from city would help furnish posh hotel.
By Mary Lynne Vellinga - Bee Staff Writer
With work already well under way on his twin 54-story condominium and hotel towers, developer John Saca is still wrapping up important financial details, including obtaining an $11 million subsidy from the city and closing on his construction loan.
Caught between rising construction costs and a slumping housing market, Saca has seen the budget for his $500 million project, which would be the tallest residential structure on the West Coast, tighten.
A few months ago, Saca began negotiating with the city for a subsidy, something he said he had previously viewed as "a last resort."
"We absolutely need it," he said. "What's happened is our construction costs for the project have gone up well over $100 million from last year."
The money would be used to help pay for furnishings and fixtures in the luxury InterContinental Hotel slated to occupy the lower 18 floors in one of the two towers at Third Street and Capitol Mall.
Saca's project faces plenty of competition. The city has received subsidy requests totalling $116 million for the $35 million remaining in its downtown redevelopment fund. But John Dangberg, assistant city manager, said it will likely get the money.
"We're definitely going to try to help this project," Dangberg said. "It's just too important for downtown."
The towers will generate more than $7 million annually in new taxes for the city, offsetting the loan in less than two years, Saca said. In addition, he said, the city would not contribute its subsidy until the building was completed and it was time to buy the hotel fixtures.
"There's no risk to the city that they're going to give the money and the project won't get built," Saca said.
Dangberg noted that nearly every hotel built in the city in recent years has required a city subsidy. Earlier this year, the City Council approved spending $9.9 million in redevelopment funds to help convert a historic office building at 926 J St. into a boutique hotel.
"The cost to develop hotels exceeds revenues generated through your room rate," Dangberg said.
InterContinental brings a new, unproven level of luxury hotel to the market. Dangberg said the hotel won't be able to count on conventions or state worker stays, because its prices will exceed what employers are willing to pay.
Saca said the luxury hotel is a crucial component of his project, because it allows him to provide services to his residents that would otherwise cost too much.
Condominium owners will have access to a spa, room service, a concierge and other hotel-style amenities in return for homeowners' dues of $500 a month, far less than those charged in many new high-rise condo projects.
"This is the first high-rise residential project to be built downtown," Saca said. "To compel people to move out of their homes in east Sacramento or wherever, you've got to give them amenities."
Another piece of the financial puzzle that Saca has yet to complete is the closing of his $375 million construction loan with Germany's Deutsche Bank.
The developer said he needs to obtain "less than a hundred" more non-refundable deposits before he meets the requirements for closing the loan.
So far, Saca said, he has collected non-refundable deposits on about 400 units at prices ranging from the high $300,000s to $4 million.
"We are really close to hitting the number we need for our lender," he said. "It's not a concern for us now."
In the meantime, construction on the site is being funded by Saca and by the California Public Employees' Retirement System, which earlier this year announced it would invest $100 million in the 804-unit project.
Saca said he and CalPERS already have spent about $70 million, including planning expenses and the land purchase cost. Cranes are currently driving 2,400 piles some 93 feet deep.
Once that's done, a 15-foot concrete slab laced with rebar will be laid on top of the piles. This will serve as the foundation for the 600-foot-tall towers.
With $100 million in construction contracts signed, there's no turning back, Saca said.
"It will get built; it's getting built. The question is whether John Saca makes any money at the end of the day. I could go through all this and end up making less money than I would have building a little Walgreens on the corner."
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