Even as Mayor Kevin Johnson worked late last week to revive an arena deal in the downtown railyard, city officials said they would push forward with development of the property regardless of the outcome.

They cautioned, however, that their effort to turn a dusty, dormant industrial site into a vibrant extension of downtown would take longer without the infusion of visitors and dollars from a sports-and-entertainment arena.

Before the proposed $391 million arena became a serious possibility, Sacramento was focused on a new train and bus station as the first major piece of its railyard effort. If the arena deal stays dead, the station would become the focus again.

"This setback does not mean we are giving up on the railyards," City Manager John Shirey said. "That (site) still has great potential for us."

Preliminary work is under way to ready the yard for development. Workers are finishing a $66 million track relocation and conducting a seismic retrofit on the historic I Street depot.

The Sacramento City Council is scheduled to get an update on railyard redevelopment in two weeks.

The 240-acre railyard, often called the nation's largest urban infill site, could double the size of downtown. Plans approved by the city call for thousands of housing units, stores, a public market and a rail technology museum.

"Does an arena make or break what we do? Absolutely not," said Jared Ficker, spokesman for Inland American Real Estate Trust, the Illinois investment company that owns the bulk of the railyard. "We still see a lot of opportunity."

After the arena deal collapsed recently, Sacramento Mayor Kevin Johnson initially said he wanted the city to explore the possibility of building an arena in the railyard without the Kings. Then, on Friday, he traveled to Las Vegas and met with George Maloof of the Kings-owning Maloof family. Afterward, Johnson said the two sides were on speaking terms again, though he stopped short of saying negotiations would resume.

If the arena were revived, it could provide a financial boost to the railyard that is unlikely to be replicated by anything else on the horizon, city officials said.

The arena budget included $18 million to help build the transit center. Projected to draw more than 1 million visitors a year, the sports and entertainment center could have been a magnet for shops and restaurants to locate nearby.

A big chunk of the money for the arena – up to $255 million – was supposed to come from the city, which was working on a plan to leverage its parking assets. Asked if the city could use its parking to finance something else in the railyard, city officials said the arena made sense because it would have drawn so many people.

Assistant City Manager John Dangberg said city officials have talked about using the concept for other capital-improvement projects. But he cautioned that the city wouldn't do it unless the project could generate $10 million a year to go back into the city general fund to compensate for lost parking revenue.

"It's very rare to find an enterprise (that creates enough revenue) to backfill that $10 million," Dangberg said.

For the city, there are certain advantages to not having to squeeze an arena into a tight piece of city-owned land in the railyard behind the historic I Street train depot. It leaves more room for the transit center, and spots for offices, a hotel and parking.

The problem is that the city doesn't have a budget or funding for the main transit center, which would be built just north of the historic depot. City officials say they hope to win federal grants for much of the project, but that could take a decade or more.

Complicating the picture, Congress is expected to pass an austere national transportation spending plan in the next few months, reducing funding programs for transit projects, city railyard project manager Fran Halbakken said.

The implosion of the arena deal also could be a setback for Inland American, which became the unexpected railyard owner more than a year ago when the previous owner, Thomas Enterprises of Atlanta, was unable to make loan payments to Inland.

Ficker said company officials were excited about the possibility of an NBA arena next door, but that they still think their 200-plus-acre property remains highly marketable for housing, offices, restaurants, stores and other projects.

He said the most important step toward developing the railyard already is well under way. The city and Inland have built two bridges to extend Fifth and Sixth streets over the tracks into the core of the railyard. Those road extensions will be completed next year, connecting the landlocked site to downtown.

A major on-site road, Railyards Boulevard, will be built as well, connecting Bercut Drive on the west with Seventh Street on the east, and linking to extensions of Fifth and Sixth streets from downtown.

That will allow the long-empty railyard to "go vertical" as early as next year, Ficker said. He acknowledged last week for the first time that the company is looking for a master developer, and is taking calls from builders interested in buying railyard parcels.

"We are aggressively talking to anybody who has interest in development," Ficker said. "We've had a lot of folks inquire about the project."

Commercial real estate broker Randy Getz of CB Richard Ellis, who recently toured some of the site, is bullish on the railyard's prospects, calling the site a rare infill opportunity "on a grand scale."

"I don't see this as a step back," he said. "More of a side step. It's clear the direction for the railyards is positive."

In an odd twist to the city's arena drama, the NBA earlier this month helped pay for the city to plan its transit center. The league wired the city $200,000 on an emergency basis to launch arena planning when the Kings balked on paying arena pre-development fees. The city spent some of that money on consultant drawings showing how to fit an arena and transit center on the same site.

The arena is gone, for now, but city officials say the transit center plan the consultant drew up is usable and gave the city new ideas on siting and design.

City officials are counting up how much of the NBA's $200,000 they spent, and say they will return the rest.

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