CalPERS to back high-rise project
By Gilbert Chan -- Bee Staff Writer
Published 2:15 am PDT Saturday, April 8, 2006
Story appeared on Page A1 of The Bee
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Developer John Saca's long hunt for a deep-pocket partner ended Friday, as he signed on an investor headquartered three short blocks from his ambitious $500 million downtown Sacramento high-rise project.
In a major coup, Saca signed a $100 million deal with the giant California Public Employees' Retirement System to invest in the Towers on Capitol Mall, a massive twin-towered, 804-unit luxury condominium and hotel complex that would dramatically reshape the city skyline and be the tallest residential structure on the West Coast.
CalPERS' investment paves the way for Saca to line up a construction lender and break ground in the next 60 days. He will start asking people who put down $10,000 refundable deposits to make a firm commitment.
"We'll start converting people early next week," Saca said. "We sent documents to them a month ago to give them time to digest this. We're inviting them to come on in, spend two or three hours with our sales staff and go over the details."
The pact answers skeptics who have questioned whether the suburban shopping center developer could secure the financing for a sprawling, 2.1 million-square-foot development at Third Street and Capitol Mall, site of the former Sacramento Union newspaper building.
"This is huge. People were saying no way it will ever work. CalPERS makes this a done deal. It got rid of all of the uncertainty," said Saca, in an earlier interview.
In a rare move, CalPERS will invest directly in the Towers project, taking a minority stake while lending its financial and real estate expertise to the first-time high-rise builder.
The fund's real estate officers, housed a short walk from Capitol Mall, will manage the investment. Normally, CalPERS' real estate deals are negotiated and overseen by outside investment partners.
"It's not a huge gamble for us. He (Saca) has a vision. It's going to be dynamic for the city. We think the long-term prospects for the city are great," said Michael McCook, CalPERS senior investment officer for real estate.
News that CalPERS was planning to invest in Saca's project cheered officials at the city of Sacramento, who are eager to see high-rise living materialize in downtown.
"Now that John's got a very good equity partner, I think that raises the probability very high," said City Manager Ray Kerridge. But he cautioned that the developer still faces rising construction costs that could force him to shrink some components of the 53-story project.
"I would say we're going to get a project there," Kerridge said. "I hope it's as close to John's original vision as possible. The cost of materials is going up and up and up, and who knows what issues are going to arise during construction."
Business leaders also hailed the announcement, saying the project would help fuel efforts to build a vibrant, well-rounded downtown community.
"You begin to get an urban neighborhood active in the day and evening," said Michael Ault, executive director of the Downtown Sacramento Partnership, a business and property improvement district. "This project will reshape how people look at downtown."
CalPERS, the largest pension fund real estate investor in the nation, has been a longtime player in inner city residential complexes, funding developments in major metropolitan centers including Los Angeles, Seattle and San Diego.
The nation's largest public pension fund, with $207 billion in assets, has more than $9 billion invested in real estate nationwide.
Increasingly, city leaders and planners across the country are promoting dense downtown developments to complement shopping and entertainment venues. The trend has spread to Sacramento, where 2,500 condominium units are proposed for downtown and midtown. Also on Friday, developer Craig Nassi began collecting nonrefundable deposits for his 265-unit Aura condo tower planned for Capitol Mall.
Some have questioned whether the market can absorb a surge of new condos and apartments, especially in a softening housing market.
Saca, president of Saca Development, said the demand is there, pointing out that about 5,000 people have been pre-qualified for his condos, and more than 500 potential buyers have put up refundable deposits of $10,000 per unit.
"There is a pent-up demand. People want the amenities and the quality of life you get in a San Francisco, San Diego, Portland or Seattle," Saca said.
More than two years in the works, the Towers features two 53-story towers that would soar over 600 feet and loom about 200 feet taller than the loftiest existing skyscraper, the Wells Fargo bank building across the street.
Plans call for building 804 luxury condos priced from the high $300,000s to $6 million for a penthouse.
InterContinental Hotels, owner of the famed Mark Hopkins Hotel in San Francisco, would have 230 rooms and occupy 12 floors of one of the towers. Target date for completion is the end of 2008.
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