urban: Details, please. Was this a neighborhood group or city staff? I'd categorize the restoration of Old City Hall as a mark in favor of preservation, not a reason to complain about it.
BrianSac: No, there was no hotel on that half-block. There was an existing retail/office building, the Coolot, which was vacant, and a short strip of one-story buildings on 8th, which was not:

There was an earlier project which had planned to incorporate the Coolot Building, am individually listed historic structure, as part of the new building, but then a "homeless person" broke into the Coolot Building and started a fire to keep warm....in the middle of summer. No more Coolot Building, no more neat preservation plan...and no more better building, enter CIM and the 800 J "Borg Cube."
Working on ways to come up with money to restore these structures is a very important thing, BrianSac--and I'm working on that, too. One thing I hope to see is implementation of the Mills Act in Sacramento--a way to encourage the owners of historic properties to maintain their buildings by providing big property tax breaks in return for certain standards of building maintenance. Los Angeles uses them for its "Historic Preservation Overlay Zone" districts and certain listed structures, but Sacramento hasn't yet implemented the Mills Act. The idea is to make preservation more economically feasible, and discourage Mo Mohanna style deliberate neglect of old buildings.
There are also grants available for preservation of historic buildings: the city of Sacramento just provided matching funds for just such a grant to begin restoration of the SP Depot, and Thomas Enterprises is soliciting for similar funds for some of the expected $125 million it will cost them to stabilize and restore their part of the Central Shops buildings.
As to the Tower Theater--the owners of the theater, a chain based out of New York, haven't been willing to invest in their property. If there is one thing the LPCA are staunchly in favor of, it's restoration of the Tower (and Joe Marty's.)