After months of negotiations, the new Sacramento Kings ownership group has been unable to close the deal on buying the remaining parcel at Downtown Plaza seen as vital to the development of a new arena.
Now, to remain on track to open the facility by 2016, the team is asking City Hall to assist in the talks and provide its threat of eminent domain as a potential negotiating tactic.
Kings officials said Thursday that they anticipated seeking the city's help in negotiating a purchase of the building that houses a Macy's men's clothing and furniture store from a New York-based real estate firm that took control of the property in foreclosure last year. Under an agreement scheduled for a vote before the City Council on Tuesday, the Kings would reimburse the city for all costs incurred in the process.
Macy's, which is the building's tenant, said Thursday it plans to vacate the property this fall and move the men's and furniture operations to the women's store at the other end of the mall.
One tool the city could use to persuade Island Capital and its subsidiary, C-III, to sell the store at 600 K St. is eminent domain, a rare – but not unprecedented – method employed in the past by City Hall in the ongoing push to revamp downtown. The decision to file an eminent domain lawsuit would require City Council approval.
"Any decision for something like eminent domain wouldn't happen for a long time," said Assistant City Manager John Dangberg.
Adam Mendelsohn, a spokesman for Sacramento Basketball Holdings, LLC, the group that owns the Kings, said the team had anticipated one day seeking the involvement of the city in talks with Island Capital and C-III. Mendelsohn added that the group is "optimistic this will come to a conclusion shortly."
"We are focused on moving as quickly and aggressively as we can to build this arena on time and at or under budget," Mendelsohn said. "It's a complex project, and we planned for every scenario."
Officials with Island Capital and C-III could not be reached for comment.
In addition, the city and Kings will negotiate with CalPERS, which owns the title to the land on which the Macy's store stands but not the building, Dangberg said. CalPERS spokesman Brad Pacheco said the pension fund was reviewing the situation.
Dangberg said the Kings had hoped to close a deal to buy the store in May or June and that an agreement between the sides had been tentatively reached. That deal eventually fell apart.
According to a city staff report, the Kings ownership group had made "a generous offer." Mendelsohn would not provide that price.
"Sacramento Basketball Holdings has been in negotiations and will continue to be in negotiations," Mendelsohn said. "Everything else has been on track in regard to site control (of land needed to build the arena)."
The Kings ownership group, led by Silicon Valley software executive Vivek Ranadive, announced in May it had purchased most of Downtown Plaza from JMA Ventures. The Kings plan to partner with the city of Sacramento on constructing a $448 million facility at the site to be surrounded by shops, housing and offices.
Preliminary plans for the arena show the facility bordering L Street at Fifth Street – adjacent to where the Macy's men's store now stands. Macy's still owns the women's clothing store at the western end of the mall, which the Kings group does not need to acquire for the arena project.
Eminent domain cases in the city are rare but not unprecedented.
The city sued downtown property owner Moe Mohanna in a 2008 eminent domain case prompted by his refusal to sell nine downtown parcels the city was seeking for redevelopment.
The case was settled eight months later, with Mohanna accepting $18.6 million for the properties. The parcels occupy the blighted 700 and 800 blocks of K Street, long a focus of the city's redevelopment efforts.
Nick Hornberger, a Los Angeles lawyer who specializes in defending property owners against eminent domain cases, said the city will need to "establish a public necessity for taking this property." But, he added, "the city will probably be able to condemn the property," given that it plans to construct an arena at the site.
"That's the classic use of eminent domain – the property owner standing in the way of a project for public use," he said. "It's kind of hard to fight that."
Judges generally make the determination of whether the city can condemn, but the decision of how much a city pays for properties is usually left up to juries. The whole process can take anywhere from 60 days to two years, Hornberger said.
The fact that Macy's operates an open store at the location could complicate the negotiations, he said, adding that both Macy's and Island Capital "have rights to dispute (the condemnation) and both of them have rights to be compensated."
However, a Macy's representative said Thursday that the chain plans to move its men's clothing and furniture store to its larger store in the western section of the Downtown Plaza, at 414 K St., when the company's lease with Island Capital expires this fall.
When that transition is complete, Macy's will close the smaller store at 600 K St. and it will be "turned back to the landlord," said company spokesman Jim Sluzewski.