Thursday, November 30, 2006

"A Giant Hole in the Ground"

From the Sacramento Bee:

Towers project facing hurdles
Downtown high-rise residence far over budget; unit sales lag.

It's little more than a giant hole in the ground, but already the 53-story Towers hotel and condominium project is $70 million over its original $500 million budget. Meanwhile, sales of the Towers' condos are slow, and developer John Saca has switched general contractors.

What all of that means for one of the tallest residential construction projects on the West Coast remains to be seen. Saca is in talks with his backers for more money, and his isn't the first commercial development to overshoot its budget. Contractor changes aren't as common, but Saca says that the swap brings in a more experienced high-rise mixed-use construction firm.

However, one thing is clear: Saca admits the Towers, at Third Street and Capitol Mall, is being pinched between a weak housing market and rising prices for materials such as steel and concrete.
Many thought the building was too ambitious to be Sacramento's first high-rise condo project and questioned whether there were enough customers to fill all those units, priced from $368,000 to $852,000.
Construction started, but as massive pile drivers over the summer banged away at the Towers' downtown Sacramento site, Saca realized the initial cost estimates fell short. He appealed to Sacramento city officials and received an $11 million subsidy in October for the 18-story Intercontinental Hotel that will anchor one of the building's two towers. Now, he's in talks with his other financial backers for more.
Besides funding challenges, Saca also said the condo market has gone soft with the rest of the housing market, and the Tower's sales are "slowing down." He also has a condo competitor, Craig Nassi, whose Denver-based BCN Development has plans to build the Aura tower two blocks east on Capitol Mall and Sixth Street.

Through September, buyers had made deposits on 364 units at the Towers, according to the most recent figures from Hanley Wood Market Intelligence, a Costa Mesa firm that tracks residential construction.
Hat tip: Max.


Anonymous said...

Oh come on. I think we've been snookered enough over what a challenge Saca faces with his condo development competitor Craig Nassi. In Bob Shallit’s November 13th column titled “Developer downplays condo woes in Reno,” he did a pretty good job downplaying Nassi’s Reno problems. A more accurate detailed report of what happen can be found in the Reno Gazette article shown below. Bottom line is I suspect that Mr. Nassi’s lenders on his Sacramento project are likely to be less likely to participate unless he can successfully pull the wool over their eyes about what actually happened with the Reno project.

My sense is that Saca’s beloved project is simply headed down a doomed path because of its economic impracticability given today’s real estate market. Time to suck it up and admit that it isn’t worth it throwing additional funding into this project that will never pencil out.

Overruns plague Palladio
Posted: 11/11/2006

The developers of the Palladio condominium tower are no longer in control of the downtown project because of cost overruns and delays with construction, according to Washoe District Court documents.

Palladio LLC partners -- Denver-based developer BCN Development and Royce Capital Advisors Inc. -- and lender Merrill Lynch Capital filed a joint petition for a receiver that was granted by the court Nov. 3, according to the documents.

David Clark, co-founder of Sparks-based Clark & Sullivan Constructors Inc., was appointed Nov. 3 by the court as a receiver for the project, putting him in charge of the remaining construction and leasing on behalf of the parties.

But the project will move forward in a cost-efficient manner, Clark said, and once completed, control of the building will return to the partners that own the Palladio.

"Generally, when a lender gets concerned, they will ask an outside party to step in and evaluate," Clark said. "And if they feel that there is a reason to get a new person to manage it, then they will go ahead and request a receiver to be appointed. In this case, it was a voluntary situation between the lender, who instigated the move, and the ownership."

The Palladio has exceeded the $28.55 million loan for construction costs from Merrill Lynch, and is unable to fund the overruns itself to complete the project, meaning the Palladio is in default "under the terms of the Loan Documents," according to court documents.

"The Loan Documents provide for the appointment of a receiver upon any event of default under the Loan Documents," the court papers said.

Officials from the Palladio did not return phones calls on Thursday and Friday, but an official for Merrill Lynch said that a court-appointed receiver will help ensure that the nearly completed project will be finished.

"Our No. 1 priority is to see this project completed, allow the residents and commercial tenants to move in as quickly as possible and see this project become the asset to the community that everyone has envisioned," said Bill Halldin, spokesman for Merrill Lynch.

"We have confidence that David Clark, a respected local builder, will be able to bring the construction to a conclusion as quickly as possible."

Changes in fire codes and rising construction costs have contributed to the overruns, Clark said.

The Palladio had tried to change the roof design from a high-pitched roof to a flatter design, which would have saved the developer about $900,000, but the Reno City Council rejected the proposal in June.

Clark said that despite the overruns, the construction on the condos and retail portion of the project has been done well, and is about 90 percent complete.

"The project is really in incredible shape," Clark said. "The quality of construction has been excellent, the finishes are looking very good and it is moving along. It was not a question of that."

Both Clark and Merrill Lynch said the project is selling well despite the overruns. Both said that 71 of the 92 condo units in the tower, on the corner of First and Sierra streets, are under contract to be sold.

The price of the condo units will not be changed, Clark said.

And, Clark said he is currently in negotiations to lease the retail space in the bottom two floors, including with various restaurants.

If all goes well, Clark said, the first residents will be able to move in by February with construction to be completed in late spring.

"The project is healthy and the funding is going to be there to finish it," Clark said. "We are really dedicated to completing the plan that was presented to the city."

Anonymous said...

snookered? in Sacramento?


Not a chance!

John Saca clearly knows his market!

Why just today, or maybe yesterday I saw blocks and blocks of folks over in Alkalai Flat who seem just right for the Saca Condos!

All John Saca needs to do is offer a little enducement (Crystal Meth works) and those fine folks will flock to his oasis or urban enlightenment!

Let's all join together and get behind John Saca! and what the hell, we can even give him the Maloof Subsidy now that the City is out of that deal, and they must be plenty flush with cash!

"John Saca Crystal Meth Highrise"

and that's "Living Urban in Sacramento"

Max said...

Besides funding challenges, Saca also said the condo market has gone soft with the rest of the housing market, and the Tower's sales are "slowing down."

That's a laugh. How many high-rise comps are there in Sac, anyway? The completely misjudged demand, and now he's desperate.

Anybody who gives this guy another dime is a fool.

Anonymous said...

Over budget, imgaine that. So I guess PERS or the Germans can pony up some more cash. Either that or Saca sells some more TV's.

Merced "Going Quickly" said...

Guess who's coming to Modesto?

HGTV's What you get for you money Show

Yep, there going to show the junk you can buy here for 200K with the 200K mansions in Texas.

I posted the story on my blog

karl marx brothers said...

drove by the site yesterday as I was entering I-5 north merge....

reminds me of when the tampa bay voters had twice voted down a tax increase to fund the new (now since built) stadium on dale mabry drive .... wasnt until the 3rd attempt when a stadium initiative was tied to a school fund increase that the voters barely, just barely approved it .. even then I noticed weeks before the election there were already several huge expen$ive pilings driven in the proposed site, and commented to my passenger that " this time it's going to pass, because no way would the city allow construction and be left holding the bag ".
FL dirty politics / obvious even to joe average six-pack like myself.

same game / different city

( oh yes, be sure to " underbid " to get the work started then act surprised later when asking for more money ,,, I mean after all, whattya gonna do, leave a half-finished eyesore ?! Builders favorite trick, with politicos nod n wink because every politician wants a perm monument to their tenure in office, complete with name in the cornerstone ,,, and they all scratch their heads at voting time. why bother to vote ? for the most part its all rigged anyway ,,,, ) !!

ok, I;m done now.

The Slide Show said...

Why would I pay $800K there at SacaVille when I can be in The Fabulous Forties for the same price and have Door to Door Top Quality SWAT TEAM direct my traffic flow homeward, after work, just in time for Christmas shopping ???

Anonymous said...

921 46th St 2,473 sq feet for $799,000. No HOA fees. Who are the idiots who would pay the same for a condo in the sky.

B. Durbin said...

Somehow, when I first heard of the Towers project, I thought it wouldn't get built. And that was BEFORE I started reading bubble blogs.

C'mon, people. Sacramento may have skyscrapers, but it doesn't have much in the way of combination living (downstairs business + upstairs living.) You'd think that would be a prerequisite for looking at condo towers...