Two office towers to test market
500 Capitol Mall construction could begin in next four weeks
Sacramento Business Journal - January 26, 2007by Michael ShawStaff Writer
Barring a last-minute objection from the public, construction could begin in two to four weeks on Tsakopoulos Investments' 25-story office building at 500 Capitol Mall.
The Tsakopouloses say they are eager to start building immediately. But filling the building might be a challenge; brokers observe there aren't enough tenants to go around, at least in the next few years.
The 25-story U.S. Bank Tower by David S. Taylor Interests Inc. is under construction one block away at 621 Capitol Mall. Combined, the two buildings would increase downtown Sacramento's Class A office market by 765,000 square feet, or about 12 percent.
It's been more than a decade since that kind of supply hit all at once. In the early 1990s, One Capitol Mall, the Wells Fargo Center and the former U.S. Bank Plaza all came on line. The market couldn't support all three, and a large amount of space went unleased for an extended period.
Brokers say things won't be as bad with the new buildings, but there could be a struggle at first.
"It certainly is going to test the market," said Greg Levi, a senior vice president with CB Richard Ellis and the leasing agent for 500 Capitol Mall. He predicted the building will be about 35 percent leased upon completion in early 2009 and won't be full for two years after. Levi said there have been discussions with several major potential tenants, though he declined to name them.
Taylor has said his building, to be completed next year, is about 40 percent leased.
The long, unleveraged view
The $115 million 500 Capitol Mall building is being built for long-term viability rather than a short-term recovery of investment, said John Frisch, managing partner at Cornish & Carey Commercial/Oncor International.
Tsakopoulos Investments can afford a slow buildup because of its deep pockets. Unlike Taylor, the company won't have to rely on lenders or outside equity firms.
Angelo G. Tsakopoulos, who heads Tsakopoulos Investments along with his father, George, responded to a reporter's questions via e-mail while he was in Italy looking into granite that will be used in the building.
"If a building is highly leveraged, the carrying costs could be an obstacle," he said. "With our significant equity, we will not have this difficulty."
In order to attract tenants in a tight market, Levi said the developers are going beyond what is found in standard Class A buildings.
"There was sort of a stutter-step with the Parthenon," he said of the building's original plan, which called for the top stories to resemble the ancient Greek temple. "They are being very conscious of public opinion."
The building design now features a glass spire running its full height along both the north and south sides.
"Ed Kado, our architect, has designed the building so that space utilized by the spire will be functional space, not just an architectural adornment," Tsakopoulos said. "We are planning for a premium restaurant at the top floors which will showcase extraordinary views of our valley as well as our state Capitol."
Chris Strain, a broker who finds space for tenants looking to expand or move, said one reason the market looks barren is that a limited supply of new office buildings artificially hampers leasing. Law firms or banks looking to use up multiple floors have few options, so things look stagnant.
"I'm going to go out on a limb and say the market can handle two buildings," he said. "What I am skeptical of is whether they can both work at that end of Capitol Mall."
Prospects?
One large tenant likely entering the downtown market is the California Housing and Finance Agency, a state agency that helps renters and first-time homebuyers with below market-rate loans funded through tax-exempt bonds.
The agency outgrew its offices at the Senator Hotel and Office Building at 1121 L St. and is leasing more than a floor at Meridian Plaza three blocks away. The agency plans to bring everyone together.
"It's the first time in a long time we've said, 'Do we want to stay here? What are our options?' " said Steve Spears, chief deputy director of the agency.
CalHFA is self-funded and doesn't rely on taxpayer money for administrative costs, making it a more likely candidate for Class A space than other state agencies.
It hasn't yet determined how much space it will need, but one insider said it was likely about 140,000 square feet. It would take a large office building -- the likes of those planned on Capitol Mall -- to accommodate it.
Industry sources said Orrick Herrington & Sutcliffe LLP, the region's eighth-largest law firm, is deciding whether to renew its lease at the Wells Fargo Center or sign a new one at Taylor's U.S. Bank Tower.
Across the street from Taylor's site, 500 Capitol Mall has passed approval from the city of Sacramento's planning and design review, and must endure only an appeal period that ends 5 p.m. Monday.
If an appeal is filed, the project will go before the City Council. Otherwise, building permits for excavation and underground work could be issued within two to four weeks, said Willie Harris, senior project manager with the city's Development Services Department. Construction permits could follow within two months.
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, didn't they match the ones in front of the federal building?
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