‘Broken’ model: $570,000 to renovate, operate a tiny affordable unit in this Sacramento hotel

A postcard from 1913 promoted all that the new Sequoia Hotel in downtown Sacramento had to offer. Phones in every room. Steam heaters. Rooms for less than $2 a day.

And, of course, beds that were the “best money can buy.”

More than a century later, money doesn’t go quite as far as it once did at the Sequoia.

After years of falling into disrepair, the Sequoia Hotel at 911 K St. will receive a $50.1 million face lift, transforming the dilapidated building into 88 units of affordable housing for the homeless. A team of on-site case managers will provide mental and physical health care, substance abuse counseling and job training for residents. And the historic building, standing prominently just a few blocks from Golden 1 Center and the state Capitol, will be gutted and rehabilitated.

Sacramento officials are promoting the renovation as a triumph in urban renewal that will provide shelter and essential services to dozens of those in need. That said, the public investment it’s taking to make that transformation is another sign of how difficult – and expensive – it is to create and sustain affordable housing in Sacramento.

Backed by state, city and county grants, it will cost nearly $570,000 per unit to renovate and operate the Sequoia. Most of the units are just 150 square feet and don’t have private bathrooms or kitchens, although all will be equipped with a microwave.

A recent Sacramento Bee analysis of significant projects in the region found that it almost always costs more than $500,000 to build a single unit of affordable housing in Sacramento, only slightly below the median sale price of a single family home in the county. More recently, several projects had a per-unit cost of more than $600,000, a price tag that means it will take several billion dollars for the region to meet its demand for affordable housing this decade.

A majority of the most expensive affordable housing developments in Sacramento are being built from scratch. But the Sequoia is being renovated, as is the nearby Capitol Park Hotel at Ninth and L streets, where the cost per unit is around $540,000, according to the Bee’s analysis.

Local officials stressed that the Sequoia’s price tag includes millions of dollars toward the cost of providing round-the-clock services to residents, keeping rents low and the complicated renovation of a 113-year-old building. But they also acknowledge that $50.1 million could go a lot further than helping 88 people.

“I think about it all the time: if I could just get $10 million, imagine what we could do?” said Sacramento City Councilwoman Katie Valenzuela, who represents downtown. “It’s an administrative gauntlet that has to be run every time we do one of these projects. And the fact that it takes 85 applications, and I’m exaggerating a little, but with multiple back flips and multiple lawyers, that’s ridiculous and it drives up the cost.”

Affordable housing developers say the process to collect the funding for projects can take years, as teams of lawyers and accountants apply for grants from the federal, state and local governments. They are also faced with strict regulatory demands that drive up the costs of development, including high environmental standards and a requirement that those working on the construction of a project be members of a union who earn wages that can add 25% to a project’s labor costs over market rate developments.

The bulk of the funding for the Sequoia Hotel – $44.6 million – is coming from the state’s Department of Housing and Community Development, which owns the property. The Sacramento County Board of Supervisors voted earlier this month to provide $2.1 million and the Sacramento City Council approved $3.4 million last week.

“If you look at the cost per unit and the cost per square foot, it’s challenging to get your head wrapped around this,” Sacramento developer John Vignocchi, who is not involved in the project, told the City Council during a hearing last week. “The opportunity cost is pretty significant when you could be helping one and a half, two times as many people. Overall it just shows that the affordable housing funding model is arguably broken.”

Valenzuela said the current residents of the Sequoia are living in a building that is essentially crumbling. Ceilings are falling down and many of the floors are torn up. Burglars have broken into the building through the roof.

“The status quo was not going to be OK,” she said. “It comes down to a value proposition for the Sequoia. If we don’t do this, what happens to that block of K Street? What happens to the people who are living there now and living in sub-standard conditions?”

Both Valenzuela and Sacramento Mayor Darrell Steinberg have pushed local tax ballot measures that could provide millions of dollars toward affordable housing. With a robust local funding source, they argue, city officials and developers could avoid the time consuming and costly process of applying for subsidies from multiple sources.

“This issue with the broken funding model, I agree with much of it,” Steinberg said at the City Council hearing, adding, “We need to change it; change the big picture and at the same time we need to build as much supportive and affordable housing as we can.”

Hundreds of units of affordable housing are either under construction or have recently opened in Sacramento. However, an analysis by the Sacramento Area Council of Governments in 2020 determined that more than 36,000 units of housing for very low- and low-income earners need to be planned this decade countywide to meet demand.