 |
| 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 SacramentoBusiness 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.
Posts
