August 14, 2013

Sacramento council votes to join Kings in negotiating for Macy's site

The Sacramento City Council has already shown its willingness to open its bank account for the development of a new downtown sports arena. It's now showing a willingness to go to court for the project as well.

The Sacramento City Council has already shown its willingness to open its bank account for the development of a new downtown sports arena. It's now showing a willingness to go to court for the project as well.

By a 7-2 vote, the Sacramento City Council agreed Tuesday night to join the Sacramento Kings in negotiating with the owner of the Macy's furniture and men's clothing store at the Downtown Plaza over the purchase of the soon-to-be vacant property.

That building, situated near the eastern end of the mall at 600 K St., is needed by the Kings and the city to build a proposed $448 million arena at the mall.

The city's involvement in the talks carries with it a key negotiating tool: the threat of seizing control of the property through eminent domain. While describing that tactic as a last resort, city officials said they could seek to condemn the property if attempts to purchase the store fall apart.

That decision would require future City Council approval.

"By acting today, we'll assure the project stays on schedule," said City Manager John Shirey. City officials are seeking to complete the arena in time for the 2016-17 NBA season.

Councilmen Kevin McCarty and Darrell Fong voted against the city's plan to become involved in the negotiations.

Fong said his opposition to Tuesday's proposal "follows the votes I've voted in the past."

Citing concerns with the public contribution toward the arena, Fong has voted against every arena-related item before the City Council this year, including the council's decision to dedicate $258 million in public money – most of it from revenue bonds backed by parking operations – to the project.

McCarty would not comment to reporters following the meeting, but wrote in a text message to The Bee later that he continues "to be concerned about the city's financial contribution and involvement" in the arena plan.

Under the agreement, the Kings will reimburse the city for all costs associated with the negotiations, including the potential purchase of the Macy's store. Shirey said an appraisal of the property is already underway.

Kings officials had come to a tentative agreement to buy the property earlier this year following months of talks, but the deal fell apart. A city staff report described the Kings' offer for the store as "generous."

Under a preliminary term sheet for the financing of the project approved by the council earlier this year, the Kings are responsible for acquiring the property needed for the arena. The ownership group, led by Silicon Valley software executive Vivek Ranadive, purchased most of the Downtown Plaza in May.

Shirey said the city's financial contribution to the arena would not increase as a result of the council's decision.

Kings representatives said they had anticipated partnering with the city in the negotiations to buy the Macy's men's store.

Macy's plans to vacate the store when its lease at the property expires this fall. The men's clothing and furniture stores will be moved to the larger Macy's-owned property on the western end of the Downtown Plaza.

U.S. Bank took control of the men's store property in foreclosure last year. The bank hired New York-based C-III to act as its "special servicer," a term used to describe financial institutions that are signed to deal with distressed loans and properties. C-III is involved in the talks with the Kings, but the final decision of whether to sell would rest with U.S. Bank.

Mike Geller, a C-III spokesman, said he could not comment on the status of the negotiations.

Eminent domain cases are common in sports facility construction projects.

The city of Arlington, Texas, took control of land to help in the construction of the massive stadium that houses the NFL's Dallas Cowboys. More recently, the New York Court of Appeals ruled in 2009 that officials could obtain land in Brooklyn to clear the way for the Barclay's Center arena to be built. Barclay's Center, which opened last year, is home to the NBA's Brooklyn Nets.

James Gilpin, an attorney who represented the city of Sacramento when officials sued a K Street land owner who had refused to sell nine properties sought for redevelopment, said eminent domain laws favor public entities that can prove the land in question is needed for a project of "public necessity" and public use.

"Historically, public use is pretty broad and pretty easy to show when the public entity is going to own the facility," Gilpin said.

The city of Sacramento would own the arena at Downtown Plaza.

Call The Bee's Ryan Lillis, (916) 321-1085. Read his City Beat blog at Follow him on Twitter @ryan_lillis.

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