Taylor town

For a guy who makes his fortune constructing big, ostentatious buildings, David Taylor sure does hate the spotlight. The city’s decision last month to give Taylor $6 million to build a mermaid bar, a nightclub and a pizza joint was mightily controversial. But Sacramento’s most influential downtown developer mostly avoided talking about it in the press, instead letting his partners or his allies in the city’s redevelopment agency do the talking for him.

“He’s been very successful by being relatively low-key,” says his friend, political consultant Doug Elmets. “He prefers to fly under the radar.”

Low-key, perhaps, but he’s had a mighty impact on the city skyline. Taylor is responsible for more high-rises in Sacramento than any other developer. He’s also the No. 1 recipient of public redevelopment dollars to make his projects work. Over the last 10 years, he figures he’s been given $25 million in public funds to build office buildings, restaurants, theaters and, yes, mermaid bars.

In fact, that estimate is a bit low. It leaves out the value of various city-owned properties and other sweeteners that have been thrown Taylor’s way over the years, and doesn’t count money that the city has specifically set aside for Taylor’s projects in the future. All in all, SN&R estimates that Taylor has benefited from about $50 million in public funds. That’s far and away more redevelopment money than any other developer has received in Sacramento. In fact, Taylor boasts that he’s parlayed the city’s money into $380 million in private investment in the city.

And you have to credit Taylor for getting things done where others don’t.

Remember back in the heady days of 2006 and 2007, when there were at least three spectacular condominium towers planned for downtown? John Saca’s 53-story twin Towers and the equally grand Epic and Aura buildings all promised dramatic makeovers for Sacramento’s skyline.

While the hype around those projects collapsed along with their financing plans, Taylor’s U.S. Bank Tower climbed quietly into the sky. A plan to bring Z Gallerie to K Street Mall got bogged down in litigation and bankruptcy. The owners of Downtown Plaza talked and talked, and talked some more, about remaking the old shopping center, but nothing happened. Meanwhile, Taylor’s Cosmopolitan entertainment complex, just up the street, opened to widespread praise. The economy tanks and nobody, anywhere, is building anything. Yet Taylor is embarking on a new project.

His success has a lot to do with his symbiotic—his critics might call it parasitic—relationship with the city. It is as though Taylor is an arm of the redevelopment agency. Or vice versa.

Is Sacramento getting its money’s worth from this cozy relationship with Taylor? That depends on who you talk to. Taylor’s most-favored-developer status came under fire last month, when the city agreed to fund his latest K Street project.

People started asking questions about a special fund the city had set aside for Taylor’s projects—part of a complicated deal in which Taylor bought the Sheraton Grand Hotel from the city in 2008. “It was just a sweetheart, back-pocket deal,” says one Sacramento developer, summing up what a lot of City Hall watchers were saying last month.

Taylor was reluctant to talk to SN&R, he says, because the mermaid-bar proposal “had gotten so wacky,” and because the paper has been skeptical about the project. But he eventually agreed to tell his side of the story.

“People who look askance at what has gone on with the Sheraton and with the latest project proposal may see it in a pretty short window of history. They may not understand all of the efforts that it has taken to get to that point,” he said.

In on the ground floor

Taylor laments that not enough people in cities across America care about the health of their downtowns. “It’s not just Sacramento, it’s the majority of mid- to large-sized cities in the country where for 50 to 75 years, city planning efforts have just been so wrongheaded.”

He didn’t always feel that way. In the 1970s, while at business school in Houston, he got a job with developer Gerald Hines Interests and began to learn about the financing of high-rise development.

“It was just a stroke of luck, getting a job with a great urban developer. I could have just as easily gotten a job with a big suburban developer and come up with a completely different direction.”

A different direction might have been simpler, and more lucrative, he says. “It’s a hell of a lot easier to make money as a developer outside of the urban core. If I had spent as much time and effort in the suburbs as I have in the urban core, I would have a lot more square footage built; it would have been probably a lot less stressful in my life.”

And though he did dabble initially with suburban projects, in Rancho Cordova, for example, he quickly turned his attention downtown.

“It became pretty clear to me early on that urban buildings—if you spent enough money and effort on the design and the concept, that they really could bring something to the table other than just revenue.”

His first project in downtown was a 19-story office high-rise at 1201 K Street, sometimes called the dome or the “Ban Roll-On building.” That was completed in 1990, just after the city completed construction of the light-rail lines on K Street, and a year after the completion of the brutal Renaissance Tower, a.k.a. the “Darth Vader building,” built by the Benvenuti family.

The 1201 K building was built with private money, but Taylor soon got involved in the city’s decades-long campaign to redevelop downtown, particularly the area around K Street Mall. In 1991, he helped form the influential Downtown Sacramento Partnership, an organization of downtown property owners, business people and public officials.

In 1998, he got the city to back what was at the time downtown’s signature redevelopment project, the Esquire Plaza at 13th and K streets.

With $6 million in city redevelopment money, Taylor would wrangle a deal with the IMAX theater chain and local restaurant operator Randy Paragary to build an IMAX theater inside the old Esquire theater building—next door to a new 23-story office tower and Paragary’s Esquire Grill.

“It was a very difficult transaction to get them to sign that lease and get enough money to it to build what’s a very expensive theater.”

As difficult as the deal may have been, over the last 10 years the project has only been a mixed success. Taylor says the office building has been well-tenanted, but acknowledges that the IMAX theater has struggled. “I’m amazed they’re still open. They could have easily left. When they came, they were promised by the city and all of us that we were embarking on an entertainment redevelopment all the way up K Street that would connect the Convention Center to the Downtown Plaza.”

But the end-to-end redevelopment of K Street didn’t happen—and the IMAX attendance has never been what was projected. Taylor eventually sold the whole Esquire complex to developer George Tsakopoulos—brother to the better-known land speculator Angelo Tsakopoulos. In 2006, Tsakopoulos raised the rent on the underperforming IMAX, and the city was forced to step in with a bailout, agreeing to help the theater pay its rent, up to $75,000 a year as needed.

For every project that Taylor has delivered, there’s an equally grand idea that never materialized. And then there’s the occasional competitor who Taylor finds he must snuff out.

One of those was a 1999 proposal by the Mills Corporation to build 16 movie screens and 400 apartments in the old Union Pacific rail yards downtown. The proposal angered preservationists, who thought it would destroy the character of the old rail depot.

Perhaps more importantly, the project was opposed by Taylor. Along with the owners of Downtown Plaza, he wanted to expand the shopping mall out onto K Street—all the way to Ninth Street.

Taylor had also been trying for years to bring a major cinema operator to K Street as well—and saw the Mills Corp plan as a threat to his efforts. Mills Corp pulled out of town, citing City Hall’s clear preference for Taylor’s plan.

“Our goal was not to kill Mills. It was to make certain they wouldn’t kill our opportunity to develop K Street in a timely manner,” Taylor told The Sacramento Bee at the time.

But Taylor’s mall expansion never happened. Multiscreen theaters on K Street never happened. And the rail yards look exactly as they did 10 years ago.

The reluctant player

Taylor’s most successful project, and one of his most controversial, was the construction of the Sheraton Grand Hotel, finished in 2001.

The financing plan that Taylor proposed for building the Sheraton at first confused members of the city council, and was described in the Bee at the time as “weird.”

The city would form a nonprofit agency to sell bonds for the hotel’s construction. The revenue from the hotel would go to paying off the bonds. Taylor would get a fee for developing the hotel. The nonprofit would lease the building to the Sheraton. And David S. Taylor Interests would be the property manager, also for a fee.

If after a time the hotel proved to be profitable, the city would find a buyer and get out of the hotel business. The deal was structured so that Taylor had the right to make the first offer on purchasing the hotel. That arrangement would pay off in ways even Taylor didn’t imagine in 2008.

With the Sheraton, the Esquire and 1201 K under his belt, Taylor was on top. Nobody was surprised when he won the bid to develop the new City Hall building. Sure, by the time it was finished, the project cost the city almost $80 million, not the $45 million originally estimated, thanks largely to the discovery of an American Indian archaeological site on the property. But the new City Hall annex is widely considered to be a beautiful addition to downtown. And it was a fitting milestone for Taylor, who by this time had cemented his position as the insider, the city’s go-to guy.

“I think it was I just got committed to it early, 20 years ago,” Taylor says of his rise to become king of downtown development.

It couldn’t have hurt that Taylor has been a generous campaign donor. He was a strong supporter of Mayor Heather Fargo, from her days on the city council. And he continued to support her, even when it was increasingly clear that she would lose her second re-election bid to Kevin Johnson. Like Fargo, he was a strong supporter of a downtown basketball arena and entertainment complex. He helped engineer Measures Q and R, which would have raised sales taxes to build a downtown arena, but failed at the ballot in 2006.

Taylor was the main fundraiser for those ballot measures; the main political consultant was his friend Doug Elmets.

“David is incredibly bright, and very serious,” says Elmets. “On the Q and R campaign, people would spout off, and he would just listen. At the end of the conversation, he’d throw out his perspective and you’d think, ‘Now why didn’t I think of that?’”

And Elmets says Taylor has a knack for City Hall politics. “It’s not just the political fundraisers. He’s managed to build relationships with people who are more political than the elected officials—the staff.”

Or, as one competitor quipped, “Taylor says, ‘Jump,’ and [the city’s downtown development manager] Leslie Fritzsche says, ‘How high?’”

But Taylor says he’s no Karl Rove. “I’m not comfortable with the political games. The amount of effort it takes to be active politically is not something that comes naturally to me.”

“My strategy has been just to do good projects. As long as I’m doing good projects and following through on them, that as the political world changes, I’ll still be able to be successful, because there are projects that the community will value. So far, that’s worked pretty well.”

K Street shuffle

In 2003, the city embarked on another doomed proposal to bring theaters to K Street. The planned CinéArts theater proposal was dropped after angry outcry from owners of Tower Theatre and from

neighborhood activists. They complained that the city’s plan to subsidize Century theaters construction of an “art-house” movie theater in the old Woolworth’s building would drive Tower and possibly the Crest Theatre out of business (see “Closing credits”; SN&R Feature; March 25, 2004).

When the city ultimately abandoned the plan, Taylor was there to pick up the pieces.

K Street redevelopment was proving so difficult and contentious that the city held a community brainstorming session, called a charrette, at the end of 2004 (see, “The grand charrette”; SN&R News, November 4, 2004).

There, developers, property owners, architects, neighborhood activists and just plain folks tried to hash out some guiding policies for downtown redevelopment. Two strong ideas emerged. The first, a policy being pushed by the Downtown Partnership that K Street should be developed as an “entertainment district.” But there was also a strong push for some new housing on K Street. The idea was that bringing more people downtown to live would support the restaurants and clubs and shops that were contemplated for the area.

After the charrette, the city divided up K Street into three major project areas. The 700 block would go to out-of-town developer Joe Zeiden, who planned to bring his Z Gallerie out of Downtown Plaza to anchor an upscale shopping strip. On the 800 block, property owner Moe Mohanna proposed a grocery store, refurbished shops and high-rise housing.

Those two blocks would later become the center of a long, sad story that ends with several lawsuits, Z Gallerie going bankrupt and, five years later, two blocks of K Street that are in worse shape than ever (see “Moe foes”; SN&R Feature; October 10, 2007).

Around this time, the city also penned an “exclusive right to negotiate” with Taylor for development of the 1000 block of K Street. The entire block was being bought up by the city redevelopment agency, under the threat of condemnation.

Taylor brought two proposals forward. One included another Paragary restaurant project and an unusual new tenant, the California Musical Theatre.

The city’s bill for the Cosmopolitan entertainment complex would come to $10 million, plus the value of the city-owned buildings there, which equaled about $3 million.

Taylor came forward with another plan for the middle of the block that included a 24-story condominium tower with ground-floor retail.

A city environmental report for that proposed project explicitly talks about the city’s preference for projects that included some housing on K Street. “One of the main policies that came out of this workshop was the introduction of residential development on K Street to support retail and commercial services in the downtown area,” the document states.

But while the Cosmopolitan building was successful, the condo plan was not.

“The numbers didn’t make sense,” says Taylor, looking back. This was at the time of the great hype surrounding the proposed Saca Towers at the foot of Capitol Mall, and the Aura condominium project, two dramatic high-rise residential projects that promised to radically alter the skyline and bring thousands of new downtown residents into the mix.

“There was lots of hype about those projects that people believed,” though Taylor says he never could see how those ambitious projects were supposed to pencil out. “The primary reason was that the fundamental economics weren’t there. It became clear to us that we weren’t going to be able to build it for much less per square foot than those two buildings. And it became clear that the numbers and buyers and the dollars in those two projects were pretty ephemeral.”

Taylor rules

With the failure of Taylor’s condo plan, the city seemed to abandon its stated goal of putting housing on K Street.

But Taylor still had an exclusive deal with the city to propose something in the city-owned 1012-1022 section of K Street. He didn’t yet know what, and he wasn’t sure how he would pay for it. After all, the city’s redevelopment kitty was running low.

“I was fearful that we were running dry of any help,” Taylor told SN&R. “There’s not enough [redevelopment money] to get all of the redevelopment done that needs to be done.”

The answer came from the Sheraton, and the “weird” arrangement he’d made with the city years earlier.

The time was right to buy the hotel. He’d offer $130 million. The city could pay off the $90 million in bonds it floated and make a tidy, nearly $50 million profit.

But there was a condition, Taylor (using money brought to the table by his partner, the CIM Group) would take the hotel off the city’s hands, for a good price, only if the city agreed to set aside half of its profits for future redevelopment projects with Taylor and CIM.

The deal went through in a hurry. Taylor was worried that CIM would balk by the time the city approved the sale.

“I was worried that they were not going to go through with it. We didn’t close until May of last year, and it was pretty clear that things were going in a down direction by then.”

Even the assistant city manager, John Dangberg, said he’s never heard of a city making a deal like this—though he enthusiastically supported it. Taylor himself calls it “novel.”

“I’ve never seen anything like it,” agrees land-use attorney Steve Belzer. “It’s a real sweetheart deal. I admire Taylor for working it out.” Belzer is now suing Taylor and the city over the deal; more on that in a bit.

Taylor says he knew the Sheraton would be successful, that it would bolster the nearby Convention Center and bring in tax revenue for the city. But he was delighted at the revelation that the Sheraton’s proceeds could be plowed back into more subsidies. “Ten years later, shit, we got all that plus $50 million of found money. We never dreamed it would throw off $50 million in net proceeds for the city.”

SN&R talked to other developers about the deal; for the most part, they wouldn’t talk on the record. But one said of the Sheraton deal, “It looks like a gift of public funds to me. How does the city allocate $24 million to anybody without going through some sort of process?”

Still, that might have been the last anyone heard of the Sheraton deal, if Taylor’s next project hadn’t been so controversial.

The mermaid and the octopus

Where he once proposed building residential units and local retail, he was now planning to bring in an out-of-town nightclub operator to open an over-30 nightclub called Frisky Rhythm, yet another upscale pizza restaurant and, of course, the now-infamous mermaid bar.

The reaction to the proposal was swift and intense. Downtown and Midtown business owners opposed the subsidy, arguing that it would further dilute business and give an unfair advantage to businesses that weren’t getting subsidized.

“Every time somebody else opens, it kind of dilutes what we have down there. I’m not saying close the door behind us, but we spent our own money down there,” said Geoff Flynn, one of the owners of Chops restaurant downtown.

Others argued that the city should subsidize new housing downtown, or new amenities that would bring people there who otherwise wouldn’t come.

Despite the controversy, the city council voted unanimously to go ahead with the subsidy on March 10.

The next week, former City Councilman Josh Pane launched the effort to ask voters to overturn the city council’s decision to give Taylor the money (see “Contested development,” SN&R Frontlines, March 26). When he came up short of the 22,000 signatures needed to put the deal to a referendum, he filed a lawsuit in Sacramento County Superior Court asking a judge to stop the deal from going forward.

Pane’s attorney, Steve Belzer, filed a complaint asking a judge to declare the Sheraton deal an illegal gift of public funds and to rule that the manner in which city assembled the properties is an abuse of state redevelopment law.

Belzer represented several business owners who got kicked out of those same buildings when the city bought them up for redevelopment. He says it is against the law for the city to use the threat of condemnation to purchase property for one purpose and then turn around and use the property for another purpose. At first the city wanted to build theaters, then housing. Now it is building bars and nightclubs. And all along, Taylor was the only one allowed to propose projects for the property.

“It shuts everybody else out, except this one bidder, Taylor,” says Belzer. “If you or I were to propose the best project in the world, the city would say, ‘Go fly a kite. Go talk to David Taylor.’”

Taylor said that he couldn’t directly answer questions about the lawsuit, on the advice of his attorney. But he was candid about the Sheraton deal and flap over his mermaid bar.

“Looking at it six or nine months later, in the midst of a controversy, I can understand why they would say, ‘There’s something sneaky about this.’ But it wasn’t sneaky, it’s playing out exactly as it was proposed to,” said Taylor, adding that the deal was done publicly and was vetted by the city attorney.

“It was a very straightforward, legal, upfront, up in public, fully reviewed transaction. If it’s not legal, I can not imagine how all of the attorneys involved would have missed that.”

Taylor now says he understands the fear of the downtown and Midtown business owners. “It’s a valid emotion. I do think that the reason why the opposition was so ardent at this point is because of the seriously impacted economy. People are very fearful.”

But he argues that subsidies for K Street projects actually “level the playing field” for a portion of the city that would otherwise continue to decay.

“It just feels so risky, and it is risky. It’s closed to traffic, it’s got 50 percent vacancy. It’s got a light rail down the middle of it that crowds out a lot of the visibility. Even in the best-case scenario, none of these retailers are going to have the flow of traffic that a normal retailer has.”

Still, he wishes he had done a better job of anticipating the controversy.

“I didn’t reach out far enough. By the time I did, it was already an us-vs.-them thing,” he said.

“But I think it was worth the community going through, though it was painful for me and painful I think for some others. That kind of community discussion, eventually, will come out with something that’s positive.”

That discussion ultimately raises broader questions. Is the city better off for its close relationship with Taylor? Is his vision the right one for downtown?

For some, such as Pane, who described Taylor as an “octopus” with its tentacles around the city council, the answer is obviously no. Another competitor remarked on the incredible lengths the city has gone through to help Taylor on the buildings at 10th and K streets. “Look at that block. You had a grocery store and a clothing store. All these years and all these millions of dollars later, all we did was replace that with a pizza place and a mermaid bar.”

But notwithstanding the occasional backlash, Taylor has thrived downtown, under the radar, for 20 years. “I think it would be hard to argue that the city has not benefited. David has played a huge role in the changing the face of downtown,” says Michael Ault, executive director of the Downtown Partnership. “I think the city has gotten a great return on its investment.” And with another $20 million in redevelopment money at his disposal, Taylor is likely to keep changing the face of downtown.