Sacramento's Drive to Sizzle
Has Hit a Few Snags

Some splashy Sacramento projects have hit snags in their efforts to add more sizzle to the California capital's modest skyline.

Progress has stalled on two luxury high-rise condominium projects -- including a 40-story tower known as the Aura and the Towers on Capitol Mall, slated to contain two 54-story towers. Both are key elements in the city's effort to transform itself into a more vibrant, 24-hour city. Meanwhile, in November Sacramento County voters rejected a tax increase that would have helped finance a new arena for the Sacramento Kings NBA team.

The challenges have come as Sacramento's previously hot residential market, which had fueled the region's recent growth spurt, also has hit the brakes. After six years of double-digit annual price gains, the median price of existing single-family homes in Sacramento County and the city of West Sacramento fell about 1% to $368,283 last year from 2005, according to the Sacramento Association of Realtors. Median condominium prices fell 11% to $218,082 in January from a year earlier.

Boosters say the difficulties are short-term setbacks. They believe the high-rise projects ultimately will get built, though other proposed luxury condominium proposals may wait until the larger projects move ahead. "Our market is ready for this kind of product -- but in baby steps," Garrick Brown, research director with Colliers International in Sacramento, says in an email. Downtown Sacramento has begun to change from an area that largely emptied out when workers went home to a cultural destination that has seen the opening of more than 40 new restaurants since 2005, according to a recent Colliers report.

About 90 miles northeast of San Francisco, Sacramento anchors a region of some 2.1 million people. Lower housing prices and living costs that are only 12% above the national average, compared with 40% above average for the San Francisco region, have drawn Bay Area residents in recent years.

Some say the cooling housing market's impact on the high-rise projects has been overstated. Lenders leery of financing projects in smaller cities like Sacramento -- not lack of demand for luxury downtown living -- have delayed the start of construction on Denver-based BCN Development's Aura tower, according to BCN President Craig Nassi. Mr. Nassi says he has sold about 70% of the 268 units in the tower, designed by architect Daniel Libeskind.

In January, construction halted on a second luxury high-rise project, proposed to include two 54-story towers, partly because of higher-than-expected building costs, according to the developer, John Saca, president of Saca Development. A spokeswoman for the California Public Employees' Retirement System says the pension fund has invested $25 million in the project, but won't put in any additional money. Mr. Saca is negotiating with Calpers to buy Calpers's interest in the project. At the same time, Calpers says it is moving forward to develop a five-block area that is to include loft-style housing adjacent to Calpers's Sacramento headquarters.

The commercial real-estate market hasn't experienced the same severe downturn that has hit the residential market and the overall economy has remained stable.

The downshift in the construction-sector jobs stemming from the lackluster housing market has been offset in part by a rise in government jobs as California's economy has improved and boosted state government, one of the area's major employers, according to Moody's Economy.com.

One massive mixed-use plan took a step forward last year. Thomas Enterprises, a Georgia-based developer, paid an undisclosed price in December for a 240-acre former rail yard and former brownfield site. Located on the edge of downtown Sacramento, the project is planned to contain about 10,000 housing units as well as offices, hotels and retail when completed in about 20 years, says Suheil J. Totah, vice president of development for Thomas.

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