The old Macy’s building is gone, one of several torn down to make way for the new Sacramento Kings arena at Downtown Plaza.
But the argument over how much the Kings will pay for the former Macy’s men’s store is very much alive – and about to explode into a multimillion-dollar courtroom drama.
The city of Sacramento, CalPERS and an investor group called C-III Asset Management are squabbling in Sacramento Superior Court over the market value of the former Macy’s property, and the parties are millions of dollars apart.
The C-III group says the entire property is worth $31.5 million. The city pegs the value at just $6.3 million. Meanwhile, CalPERS says its piece of the puzzle – the land underneath the demolished building – alone is worth $12.85 million. The issue will be decided in an eminent domain trial scheduled for April.
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Disagreements over land values are at the heart of most eminent domain cases, but veteran Grass Valley land appraiser Dave Jarrette said he’s astounded by the disparities in the Downtown Plaza case.
“These eminent domain things can get pretty crazy, but usually you don’t see this big a difference in numbers,” Jarrette said Tuesday. “I haven’t typically seen these extremes.” Even though land values downtown have risen because of the arena project, Jarrette said he believes C-III’s estimate is too high.
It’s hardly an academic exercise. The value assigned to the property at trial will become the price the Kings will have to pay under an agreement with the city. The team earlier paid $36 million for the rest of Downtown Plaza, so its land-acquisition costs for the arena are in danger of growing significantly depending on the outcome of the trial. The land-acquisition costs are in addition to the $477 million price tag for construction of the arena, about half of which is being funded by the city.
Kings spokeswoman Laura Braden declined comment on the matter.
The old Macy’s property sat on a 1.9-acre parcel at the southeast corner of Downtown Plaza. After Macy’s vacated the three-story building in 2013, consolidating its men’s department with the main store at the other end of the mall, city attorneys wrestled possession of the property away from the C-III investor group in a contentious court fight.
That gave the Kings the green light to tear down the 211,000-square-foot building, which was one of the first structures to go when general demolition began last August.
But the issue of compensation remains unsettled, and pretrial documents filed by the city, CalPERS and C-III show there’s very little common ground about how much the property is worth.
Last month, the city gave the court an appraisal, by Chris Carneghi of Carneghi and Partners Inc. of San Jose, saying the entire property was worth $6.3 million.
Last week, C-III offered a much higher estimate. Its consultant, Arthur Gimmy of AGI Valuations in Petaluma, said the property was worth $31.5 million.
The figure includes $21.75 million for the building, $2.5 million for the CalPERS-owned land and $7.25 million for an adjacent underground parking garage owned by the city. Because no money would change hands for the city-owned garage, the Kings would have to pay the property owners $24.25 million if the court accepts C-III’s estimate, not $31.5 million.
Then there’s CalPERS, which has offered its own valuation for the land it owns beneath where the Macy’s building stood. Its consultant, Walter Carney of Valbridge Property Advisors in San Jose, said the California Public Employees’ Retirement System is entitled to $12.85 million for the land.
Nowhere in any of the consultants’ reports is the word “arena” mentioned, and that’s the way it’s supposed to be. Although the arena is already boosting downtown property values, Jarrette said the big construction project isn’t supposed to figure into estimates of the worth of the old Macy’s building. Rather, the appraisers are supposed to determine the valuation as if the building were still standing and there was no arena project.
“You have to ignore that,” he said, referring to the arena project. “You have to look at (the building) as is.”
Because of that, Jarrette said he would be surprised if the court agrees with C-III’s argument that one building at Downtown Plaza was worth nearly $22 million – especially in light of the fact that the Kings paid only $36 million to purchase the vast majority of the mall.
“It is a stretch, in my opinion, $22 million,” Jarrette said.
David Brandenburger, a vice president in the Sacramento office of Cornish & Carey Commercial Newmark Knight Frank, agreed that C-III’s valuation appears to be too high.
“C-III is totally off base in their opinion of value,” said Brandenburger, who represented JMA Ventures of San Francisco when it bought the rest of Downtown Plaza for $22 million in 2012. JMA sold the mall to the Kings last January for $36 million.
Brandenburger said he’s heard of eminent domain cases where property owners have been able to secure higher prices than most experts predicted. Notably, property owner Moe Mohanna “held out for a king’s ransom” in negotiating with the city over several parcels on the downtown K Street corridor several years ago, Brandenburger said. Mohanna settled for $18 million, which Brandenburger said was more than anticipated by many in the real estate community.
As a property owner, “you just throw out as big a number as possible,” he said.