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Originally Posted by snfenoc
Interesting perspective SOT. I still think the cost of supply needs to come way down. Otherwise, Sacramento is going to need a lot more rich folk before we see a high-rise "boom".
Having said that, I agree that a couple successful, precedent-setting high-rise projects, along with a strong base of mid-rise projects, could grab investor attention. Sacramento Commons has begun its phased construction of a master planned development that would include 2 mid-rises to start, then 2-3 high-rises. If the mid-rises do well, maybe we can expect the developer to take a chance on at least one of those high-rises. What do you think?
You mentioned that you're working with DBRDS on a project in West Sac. I read that they're involved with another project in Midtown: D&S Development's 17 Central project. It seems like we might see a lot more from them??
Also, SKK Development is working with a De Bartolo company to bring a number of projects to Midtown (500+ units of housing). Is that De Bartolo company associated with DBRDS? Or are they separate (name only relation)?
Regardless, it seems like the De Bartolos have an interest in Sacramento.
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Hey Steve - Remember brother, everyone is really guessing in development. Some guesses are better, more informed than others, but they're all still guesses. Never take my comments as though I consider them some kind of end-all, be-all. I've had some success by "guessing" pretty well. That's all...
You are absolutely correct that construction costs are often prohibitive and that bang-for-buck is critical to attract investment. You are also correct that with those costs being so high right now, it's hard to find the sweet spot for high-rise viability in Sacramento, when $6.00/sf rents are a couple hours away.
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For what it's worth, a City Council Member recently told me that the CALPERS project at 301 Capitol Mall doesn't pencil out for them. I was told that it is hundreds (I think the number was 300) of millions of dollars short of being viable.
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Viability means different things to different people. To me it means (in essence) paying off my loan(s), paying back my equity partners at the agreed-upon rate, paying myself, and doing so in that order. Then either holding for a cash-flow return that is significantly better than I can get by letting money sit in bank or invested in securities. Or selling with a significant all-in return (IRR).
Of course, that's not the only reason you do this for a living. You really do what to contribute something good to your community and you want to be proud of your work as a place where people don't just live, they thrive.
As much as developers have a reputation to the contrary (albeit, sometimes richly deserved), most of the men and women I know who do this for a living feel the same exact way.
But all that comes with a cost.
$300 million short is a breathtakingly ghastly number and I am skeptical of it. Total project costs can't be much more than that (relatively).
Some of you may recall the project I worked on at Sac State. That project was coming in at between $500-$650 million, depending on ultimate scope.
That's a $150 million range, but that's due to scope of project. It's not "Here's what we're doing and we only need another 75% on top to make it work. That's not a problem is it?"
They're doing the right thing by mixing other high-end uses to fill those floors. In addition to great quality as demanded by that site, there's lots of potential capital sources that way. And you can bet CalPERS is watching DOCO with a keen eye. Probably waiting for those last units to move before deciding on a "final" plan. Wouldn't be surprised if that's part of the delay.
Maybe one too many "zeros" in that number. $30 million on a project of that size is negotiating... $300 million off: no one's even having a conversation. If indeed, $300 million, there is no hope for the project as presently envisioned.
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You mentioned that you're working with DBRDS on a project in West Sac. I read that they're involved with another project in Midtown: D&S Development's 17 Central project. It seems like we might see a lot more from them??
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Steve - Pauly De Bartolo, a Principal at the firm that bears his name, has moved to Sacramento. So yeah... you'll be seeing a lot more from his firm in the area.
Side note - the West Sacramento project (with dbrds) was approved and is ready for building permit, thus ending my participation as my new group seeks our own projects.
To pull the building permit, the City fees total nearly $1.5 MILLION.
As many of you know, Building Permit fees are often based on construction budget, which for this project is about $8 million. So... this means building fees (Doesn't include affordable housing fees or plan check fees or any other misc fees. This is the fee total presented by the City when the Building Permit was ready to issue.) represent just short of an
ASTONISHING 19% of our construction costs!
And you wonder why housing is so expensive in California?
By contrast, we're about to close on a site in Reno. Same kind of thing, renovating an abandoned warehouse into 23 lofts/apartments (vs 40 in West Sacramento).
Our estimated fees? $19,000... all-in. $19 freaking thousand! And when I'm up there I can't help but notice that their roads seem to be well-maintained, schools seem to be fine, water and air not polluted...
But $19,000 vs $1,500,000... Jesus.
Where do you think the capital markets will invest?