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|November 30th, 2006, 09:33 PM||#11|
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Towers project facing hurdles
Downtown high-rise residence far over budget; unit sales lag.
By Jon Ortiz - Bee Staff Writer
Published 12:00 am PST Thursday, November 30, 2006
It's little more than a giant hole in the ground, but already the 53-story Towers hotel and condominium project is $70 million over its original $500 million budget.
Meanwhile, sales of the Towers' condos are slow, and developer John Saca has switched general contractors.
What all of that means for one of the tallest residential construction projects on the West Coast remains to be seen. Saca is in talks with his backers for more money, and his isn't the first commercial development to overshoot its budget. Contractor changes aren't as common, but Saca says that the swap brings in a more experienced high-rise mixed-use construction firm.
However, one thing is clear: Saca admits the Towers, at Third Street and Capitol Mall, is being pinched between a weak housing market and rising prices for materials such as steel and concrete.
Despite those challenges, Saca, a scrappy local developer who has already brought his project farther along than naysayers thought he would, remains optimistic.
"We're close to a deal with our backers for more money," he said Wednesday. "We're pumping along."
Saca went public two years ago with his vision for a massive twin-tower structure anchored by a luxury hotel, high-end retail and 804 condos rising 600 feet and drastically changing the Sacramento skyline. He figured it would cost about $500 million for the land and construction.
Many thought the building was too ambitious to be Sacramento's first high-rise condo project and questioned whether there were enough customers to fill all those units, priced from $368,000 to $852,000.
Saca, whose father founded the Filco home appliance chain, had a reputation as a savvy land investor and shopping center developer, but had no history with high-rise construction. Still, he gained credibility in April when the giant California Public Employees' Retirement System agreed to invest $100 million in his project.
Two months later, he signed a $375 million loan agreement with Deutsche Bank, contingent on Saca preselling 400 condos. Saca committed his own money to make up the balance.
Construction started, but as massive pile drivers over the summer banged away at the Towers' downtown Sacramento site, Saca realized the initial cost estimates fell short.
He appealed to Sacramento city officials and received an $11 million subsidy in October for the 18-story Intercontinental Hotel that will anchor one of the building's two towers. Now, he's in talks with his other financial backers for more.
"Costs are higher than when we struck our deals," Saca said. "We've had to go back, and we're close to loan closings with CalPERS and Deutsche Bank."
A CalPERS spokesman on Thursday said that the system's real estate representatives "have been in discussions with Saca about more money," but, like Saca, declined to say how much.
Calls to Deutsche Bank's New York offices were not returned.
Sacramento developer Paul Petrovich said that Saca probably will give up more or all of his ownership stake in the project for more construction cash.
"The pot at the end of the rainbow for John at this point isn't money, it's credibility with politicians, other cities and other lenders," Petrovich said.
With the Towers on his resum?, Saca could get into even bigger projects down the road, Petrovich said.
Besides funding challenges, Saca also said the condo market has gone soft with the rest of the housing market, and the Tower's sales are "slowing down." He also has a condo competitor, Craig Nassi, whose Denver-based BCN Development has plans to build the Aura tower two blocks east on Capitol Mall and Sixth Street.
Through September, buyers had made deposits on 364 units at the Towers, according to the most recent figures from Hanley Wood Market Intelligence, a Costa Mesa firm that tracks residential construction.
The slump didn't deter Bovis Lend Lease Inc. from taking over the general contracting duties from Turner Construction Co., which had overseen the project's pile driving phase. Both firms are based in New York City.
Privately-held Bovis is one of the world's largest project management and construction companies.
Bovis' Western Regional Vice President Todd Pennington said that he couldn't yet estimate when the Towers will open.
"We're developing schedules and hiring the trade contractors," Pennington said. "We'll just keep moving from where others left off and keep the progress going."