[urban_encounter]

Towers project looks shakier
Developer misses buyout deadline for his 53-story dream.
By Mary Lynne Vellinga - Bee Staff Writer
Last Updated 12:17 am PDT Wednesday, May 30, 2007
Story appeared in METRO section, Page B1


Downtown high-rise developer John Saca missed Friday's deadline to buy out his estranged partner, the California Public Employees' Retirement System -- leaving the fate of his twin condominium towers more precarious than ever.

"Things did not turn out the way we were hoping," Saca said. "We had under 60 days to raise over $60 million for a project that was really underwater. ... We just ran out of time."

The giant state pension fund now has a week or two to decide whether it wants to take over the stalled, debt-ridden project at the entrance to Capitol Mall and move forward without Saca, CalPERS confirmed Tuesday. The pension fund invested about $25 million with Saca before cutting him off in late 2006, citing cost overruns.

CalPERS has brought in the CIM Group, a Los Angeles-based developer, to decide whether it would make financial sense to pursue a significantly scaled-down version of Saca's 53-story condominium and hotel towers. CIM's idea for the site also would include some office space, said CalPERS spokeswoman Pat Macht.

"CIM is taking a look at it, and they're conducting their due diligence," Macht said.

CIM also has approached the city about a possible subsidy for the project, Macht said. The city had committed $11 million to Saca to help buy fixtures and furnishings for the hotel once it was constructed.

CIM is best known in Sacramento for its recently completed seven-story loft apartment project at Ninth and J streets. CalPERS was also an investor in the project. The city of Sacramento contributed about $16 million in redevelopment funds.

Sacramento Assistant City Manager John Dangberg would not discuss the details of the city's discussions with CIM or CalPERS. But he pointed out that the City Council's main focus for redevelopment spending remains the more blighted area around J, K and L streets -- not the Capitol Mall.

"The City Council chose to step away from those priorities to assist (Saca's) project because of its impact," Dangberg said. "If that project goes away, I think what still stands is the council's priority for J, K and L."

The current cloud hanging over one of downtown's most visible development sites is far from the optimism city leaders and Saca once voiced about his chances of building the West Coast's tallest residential structures.

Saca is a shopping center developer with no previous high-rise experience. His family is best known for founding the Filco appliance chain. Yet he captured the public imagination -- and nationwide attention -- with his ambitious plan to build something grander and taller than his hometown had ever seen.

Even as the housing market stalled, Saca still managed to secure deposits for about 400 units in The Towers. But construction costs soared. The CalPERS executive who made the commitment to invest $100 million in the project left the pension fund, and CalPERS managers became increasingly uncomfortable with putting in more money. The pension plan pulled the plug.

Construction on The Towers stopped in January. In February, Saca defaulted on the loan he used to buy the prime site at Third Street and Capitol Mall, once the home of the Sacramento Union newspaper.

Contractors who worked on the site have since filed liens totaling about $13 million.

"It can't get much worse," Saca said Tuesday. "There's a stigma on the property now, and it's hard to overcome that."

The $22 million mortgage on the construction site has been purchased by Joseph Mohamed Sr., a Sacramento investor who is inclined to give Saca plenty of breathing room. Mohamed has a personal reason for wanting to see Saca move forward.

"We bought some units there too that we'd like to live in," Mohamed said. "So we're going to do whatever we can to make it work."

About three-quarters of Saca's original buyers also have agreed to extend the terms of their purchase contracts -- another key element in keeping the project afloat, he said.

Still, the interest and penalties on his debt continue to pile up, Saca said, making outside investors reluctant to get involved. Complicating matters is his contentious relationship with CalPERS. Saca said that also makes potential investors leery.

Saca said he's still hopeful that CalPERS will wind up agreeing to accept something less than the money it has spent. In that case, it would be easier to find new investors, he said. If the property goes to foreclosure, the pension fund's entire investment will likely be lost.

Saca said Tuesday he would be disappointed if the CIM plan moves forward.

"The sad thing is that CIM doesn't want to build (my) project," he said. "They would basically throw away the plans and start from scratch."