The Renaissance Tower, scheduled for auction Monday, is a key piece of downtown real estate, coming up for sale at a critical time for Sacramento's central business district.
One downtown expert said the tower may serve as a bellwether for the recovery of the district's office market.
"Renaissance Tower is going to be an interesting case study," said Scott Ford, deputy director of the Downtown Sacramento Partnership. "It's going to be important to reposition that asset into the evolving central neighborhood."
The Renaissance Tower, built 35 years ago, and was part of a different turning point for Sacramento's central business district in an era defined by high-rise construction and an emphasis on large office spaces.
Nowadays, several regional business leaders believe downtown must evolve into a more mixed-use area with a better balance of offices, housing and retail, shifting away from the office-centric views that defined the time when the tower was built.
"Success isn't going to be looking in the rearview mirror toward 2019," Ford said. "It is going to be building a healthier, more integrated and more sustainable downtown for the future, and not being so overexposed to one sector of the market -- which, in this case, is office."
A changed district
In the early 20th century, Sacramento's downtown was a more mixed-use district, with residential areas and retail spaces alongside offices.
The land the Renaissance Tower now occupies, at 801 K St., was previously the Clunie Hotel. The Clunie was an architectural mix of four buildings constructed between 1880 and 1923, including the former Clunie Theater, and had ground-floor retailers selling records, jewelry and wigs.
Beginning in the 1960s, the city pushed residential neighborhoods out of Sacramento's urban core in favor of an office-heavy district. And over two decades, dozens of downtown hotels were converted into office space or razed, for instance, to make way for freeway overpasses and pedestrian access to the K Street Mall.
The Clunie Hotel was closed in 1980 after the city labeled it a fire hazard. Demolition began in November of 1986. The Renaissance Tower opened in 1989.
City officials viewed the tower as part of a revitalization of downtown, and a means of bringing jobs and revenue to the city's urban core and bolstering the mall. Developers hoped the tower would boost Sacramento's profile along with its skyline.
The 28-story building was designed to resemble a jewel, paneled with red granite and blue vertical glass. But soon after it was completed, in a reference to the dark glass exterior, locals began calling the tower the "Darth Vader" building.
It became the tallest building in the city for a time, looming 160 feet higher than the Capitol dome.
Now downtowns across the country are challenged by a pandemic-era shifts in the real estate market, with commercial tenants giving up office space amid the popularization of remote work.
Sacramento's downtown as a whole may have fared better than other metro areas, said Will Austin, director of market analytics for CoStar in Sacramento. In the last 15 years, the city didn't see as many new office buildings constructed as other cities, Austin said. So while vacancies are certainly up, the market overall is still more stable than, for instance, parts of the Bay Area. Plus, the largest employers here -- government and health care -- don't typically add or give up real estate very quickly.
"Because we didn't have all that new inventory added to this market, we haven't had a bunch of new inventory to subsequently be vacated. Sacramento kind of grew into itself, from an office perspective," he said.
The Renaissance Tower though, is an exception, he said. According to materials marketing the building for auction, the tower is 27% occupied.
"The one user that has always been willing to take office space that maybe private sector tenants weren't willing to pay for has been the state of California -- provided it comes at some sort of discount," Austin said. "With them moving into their own real estate portfolio, there are a lot of questions about who the next group is to come in and occupy large chunks of that building."
'A better downtown'
Several key business leaders now aspire to fill downtown Sacramento with more housing and academic institutions, and make the district less reliant upon any single sector. Midtown, with its mix of storefronts, entertainment venues and residential blocks, is a common reference in talks about downtown's future.
"I think that that's very much what we're trying to transition downtown towards in the future. It's going to be a mixed-use, much more integrated, central neighborhood," Ford said. "It's not as susceptible to big market swings like we're seeing right now in the office sector."
Experts said the prospect of lower valuations for the large office towers is a concern for property tax revenues. Several recent downtown office buildings have seen marked declines in sale prices. The 13-story building at 770 L St. recently sold for $22.5 million, down from $44.5 million in 2018, according to the Sacramento Business Journal.
The Renaissance Tower previously sold for $80 million in 2016. It's now scheduled for a three-day auction that will run from Monday through Wednesday.
The brokers overseeing the Renaissance Tower sale, Randy Getz and Jason Goff with CBRE, declined to comment. The company that owns the building, Massachusetts-based Office Properties Income Trust, didn't respond to messages seeking comment.
Still, Austin said, lower valuations may allow rents to come down, which can encourage tenants to lease space.
"That is one thing that could actually accelerate activity downtown," he said. "Overall, I'm pretty optimistic about what downtown Sacramento's going to look like over the next five to 10 years."
Barry Broome, president and CEO of Greater Sacramento Economic Council, said that he is concerned about devaluations, and the possible impacts for property tax revenues. But similarly, he said that the lower prices may open doors for redevelopment.
"I'm afflicted with eternal optimism," Broome said, "but I really do believe this... It gives us a chance to build a better downtown."
Over the longer term, Broome said Sacramento is primed for big wins. If the tech industry remains committed to the return-to-office movement, for instance, he thinks the city is well-positioned to lure a company like Amazon, Microsoft or Google to buy large chunks of office space here.
Sacramento can make a compelling pitch, he said, with its walkable grid and low housing costs relative to the rest of the state.
"That's not going to happen in the next two years, but I think that's a real opportunity," Broome said. "It won't happen if we're down on the community, and it won't happen if we're risk-averse."
"We've got to be more aggressive, more ambitious, and more optimistic," he said.