|Pre-leasing Vanir Tower proposal|
Last November plans were announced for a 26 story high-rise for J Street named the Vanir Tower. The Vanir Tower application team then withdrew its proposal to make “minor modifications”. As of today the Vanir project has not re-submitted their plans to the city but a pre-leasing billboard has been posted at the proposed project location.
What makes this project interesting is that it’s being proposed when the square foot market value to rent a “trophy” building in Sacramento is below what a brand new building would have to charge. Greg Levi, managing director with Jones Lang LaSalle Sacramento and agent for pre-leasing the Vanir Tower stated in Sacramento Business Journal last June “Though rents are rising, though, they’re not high enough to bring construction cranes just yet. The highest rents, around $3.10 a square foot, are still about 40 cents below what a brand-new building would have to charge,” Levi said. So essentially Greg’s saying that rents would have to rise an additional 40 cents a square foot before it would be profitable to build this high-rise downtown… that’s a 13% increase.
So I’m still skeptical this project will ever get off the ground for several reasons. First, as stated above, rents would have to rise 13%. Another reason is that they need to fill at least 50% (186,000 of the 372,000 sf) of the tower before banks will consider lending to them for construction. If Vanir Construction Management has deep pockets, they could build this tower on speculation using their own money like the Bank of the West Tower did at 500 Capitol Mall. It appears to me their need to pre-lease the tower says they need to fill fifty percent of the tower.
To use history as my guide, back in 1999, the U.S. Bank Tower at 621 Capitol Mall started the pre-leasing process when it was originally proposed for 31 floors. After several years of not finding enough tenants to fill 50% of the tower, developer David Taylor reduced the size of the tower by 6 floors. Even with the reduced floor count it took another six years before enough pre-leasing tenants signed up so a bank would lend and construction could begin in 2006.
Once Vanir re-submit their revised project with the city and go through both the entitlement and environmental review process, this proposal might have a chance.