Friday, September 3, 2010
West Sacramento makes play for high-rise riverfront hotel
West Sacramento is betting on a hotel rebound with its latest proposal for a publicly owned, high-rise hotel along the riverfront.
After buying 4.6 acres south of the Ziggurat building last month, the city is now under a tight schedule to strike a deal with developer Parkcrest Development Corp., which walked away from a hotel proposal for Sacramento’s K Street last year.
One reason for the rush is the project’s financial backer, a large South Korean fund, is looking to invest sooner rather than later. And the city is aiming to complete a bond sale to fund construction by the end of the year. That means it needs a development agreement and a guaranteed maximum price from a contractor well before then.
The pressure has some city officials feeling guarded.
“I’m cautious because there’s not a lot of these projects happening right now,” said City Councilman Mark Johannessen, adding that the final terms of the deal will dictate whether he’ll give his approval. “The question in my mind is, how can we do it here? It could be a good proposal, but I’m ready to pull the plug if things go sideways.”
City officials said this week that the investment fund Consus Asset Management Co. Ltd., which has been described as South Korea’s version of the California Public Employees’ Retirement System, has committed to purchasing $100 million in federally backed bonds that will be used to build the hotel. No drawings have been released publicly, and officials aren’t sure how many stories it will be. It is expected to be 300 rooms and up to 16 stories, with 20,000 square feet of meeting space.
“We’ve done a lot of due diligence,” said Tina Gontarski, West Sacramento’s community development director.
More business by 2013?
The hotel market has struggled the past two years, though it appears to have stabilized. Colliers PKF Consulting in San Francisco reported that Sacramento hotels were busier in June than they were a year ago; during that time, occupancy increased to 66 percent from 63.2 percent. The region’s average daily room rate was lower, however, at $91.20 in June, down from $95.69 a year ago.
PKF performed a confidential study for West Sacramento indicating the hotel market will be healthier when the hotel is expected to open in 2013, said Paul Blumberg, public finance manager for the city.
“Last year was a horrible year for hospitality in Sacramento,” Blumberg said. “Our market study shows occupancy is coming up.”
Blumberg said there’s also an urgency to capitalize on low construction costs before prices for steel and other materials begin rising.
Sources said the city is negotiating with Marriott Hotels to be the operator, but none of the parties would confirm the information. That deal would make sense given that Sacramento already has full-service Hyatt and Sheraton hotels.
Architecture firm Cooper Carry of Atlanta is working on designs, and the general contractor is Hensel Phelps Construction Co. Parkcrest has built mid-rise hotels from Rancho Cucamonga to Portland, Ore. While it does not have experience building high-rises, the architect and contractor do, Blumberg said.
The proposal is to use Build America Bonds, a stimulus package creation offered to encourage development during the recession, to fund the construction. The federal government guarantees the bonds and pays a portion of the interest. If the hotel is built, the city’s finance authority would own it, similar to the formerly city-owned Sheraton Grand in downtown Sacramento.
The K Street question
The lingering question for some is why the development team and Consus withdrew their larger hotel proposal on K Street. Parkcrest Development’s principals met with West Sacramento officials about the new venture just weeks after withdrawing from the K Street proposal.
Leslie Fritzsche, Sacramento’s downtown development manager, said there were indications that all the financing was not in order.
But Robert Leach, who developed the boutique Le Rivage Hotel on the Sacramento riverfront and now works for Parkcrest, said the Sacramento deal fizzled because there wasn’t the same sense of urgency from city officials and they were ambivalent about a hotel at the K Street location. The K Street project also meant dealing with historic preservation and parking issues, whereas West Sacramento represented a “clean slate,” he said.
“The proof will be in the pudding,” he said. “If three years from now you see a beautiful hotel on the river, it will be pretty clear who dropped the ball on K Street.”
Sung-Min Park, director of project management for Parkcrest, declined to comment, citing a confidentiality agreement with West Sacramento.
Other developers are watching the deal.
“I’ve got great faith in our city council and staff,” said Dan Ramos, whose family has been developing real estate in the city for years and owns property nearby. “If they realize this is not the deal they think it is, then they will unravel it.”
The idea for a city-owned riverfront hotel stems back to 2007, and the city sought to sell as much as $250 million in bonds to finance it. Panattoni Development had an option on the land, but it expired last year without a hotel deal.
“In essence, it’s a great site and a great concept,” Ramos said. “It’s real important you choose the right partner.”
mshaw@bizjournals.com | 916-558-7861
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