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Decades later, is downtown Sacramento’s railyard finally ready for its big moment?

Sitting idle, forgotten and forlorn for decades, downtown Sacramento’s massive railyard chugged back into relevance last week.

Kaiser Permanente announced it purchased the equivalent of eight city blocks in the railyard’s northwest corner for a major medical center. And Beverly Hills billionaire Ron Burkle signed a land deal to build a Major League Soccer stadium and entertainment district at the northeast end of the sprawling property.

The 19th-century yard, nearly as big as the existing downtown, could finally fulfill its mission as an economic and innovation center, much as it did for a young city during the Transcontinental Railroad era.

“We are now light years ahead,” said Mayor Darrell Steinberg. “2019 is the year of the breakthroughs.”

But the railyard’s future is far from set. Developers and city officials say there are big hurdles to jump before the 240-acre site – likely to be the costliest infill project in city history – becomes a thriving addition to downtown.

Infrastructure construction is expensive, topping $300 million in private, city, state and federal funds so far, with more costs to come. Questions remain about how quickly businesses and builders will invest in a site that’s adjacent to the central city but not yet fully part of the downtown core. The soccer stadium and Kaiser hospital are likely several years away from being built, and the sheer size of the property suggests it will take up to 20 years before the rest of the district gets built.

The site has a history central to Sacramento’s economy and identity. The railyard opened in the 1860s, and for more than a century, workers went there daily – at times packed on trolley cars – to make silverware for dining cars, lumber for tracks, upholstery for rail cars, and to build locomotives from scratch.

All of that came to a halt in the early 1990s, when Southern Pacific introduced the idea of redeveloping the railyard into a community and an extension of downtown, a vision embraced by the Union Pacific when it took control of the site. UP later sold. The city and a string of developers have been trying in fits and starts ever since to reinvent the site. Now the railyard might finally have the pieces it’s been missing the past quarter century, said Denton Kelley of LDK Ventures, the railyard’s current developer.

“Kaiser is absolutely a critical milestone for making the project not only viable, but it gives the project an immediate validation … and visibility,” Kelley said, sitting in his 25th-floor office of the US Bank Building overlooking the railyard. “It’s really the spark that lights the fire.”

As for soccer, a sport noted for attracting millennials, the stadium “captures the future of the region,” he said.

LDK, co-founded by Kelley’s father, Larry, is known for taking on major projects, including the Stanford Ranch community in Rocklin. LDK converted the shuttered McClellan Air Force Base into a thriving business park in less than a decade.

The company acquired most of the railyard’s 240 acres in 2015, making it custodian of a large piece of Sacramento’s history. “We feel fortunate,” Denton Kelley said.

The railyard might be the Kelleys’ biggest and longest-running challenge yet.

The medical center won’t open until 2025. The soccer stadium could be built by 2022, but only if Steinberg and Burkle are able to win a Major League Soccer expansion team this year. The longer MLS waits on a decision on Sacramento’s expansion bid, the longer it will take for the stadium to open. If MLS rejects Sacramento’s bid, the stadium won’t get built at all.

The first big structure to open for certain will be a new $490 million Sacramento Superior Court building. Standing 17 stories tall, the state-funded courthouse is expected to begin construction this year on land at the south end of the railyard and is projected to open in 2022.

Work also could begin this year on a 303-unit apartment complex, bringing the first pioneering residents to the railyard in the next few years.

The development group will focus this year on preparing the site’s historic central shops buildings into usable modern spaces. The huge vaulted brick buildings are some of the most architecturally striking structures in the Sacramento region, noticeable from nearby Interstate 5, and represent a core element of the city’s history. But they require extensive retrofitting.

“They are a blessing and curse, the yin and the yang of the development.,” Kelley said. “Such is the nature of historical adaptive reuse.”

When transformed, they will serve as the railyard’s central gathering spot. Kelley said he wants to land an entertainment venue there to act as a magnet for other shops, restaurants and housing, much like Golden 1 Center serves as the central drawing point for the surrounding Downtown Commons food and entertainment district.

“The buildings really are what the whole project takes its cue from,” Kelley said. “The culture and the vibe. It’s really the roots of the project.”

The State of California plans to turn two of the shops buildings into a hands-on transportation and technology exhibit.

The LDK development group wants to leverage the Kaiser and soccer announcements to market a pair of planned six-story office buildings this year as well. The goal is to land companies with high-paying jobs, so workers can afford “the rents that it requires to build new development in an urban setting,” Kelley said.

Which brings up a potential sticking point: Like the Kelleys, the city wants technology start-up firms and other companies with high-salary jobs to flood the railyard. But the city also wants a fair number of low- and medium-rent apartments to appeal to young state workers and lower-income employees.

“There needs to be a commitment citywide to work for affordable housing,” Steinberg said. “We are going to insist on it. We are going to be an inclusive city … everywhere we build.”

Kelley said the railyard will have low-income housing, but where and when has not been determined.

Perhaps the biggest impediment to development is the high cost of infrastructure. Thanks mainly to state and federal grants, with some city sales-tax money thrown in, more than $300 million has been poured into the railyard the past 20 years – cleaning toxic waste, building streets and bridges to connect the yard with downtown, and adding other basic community building blocks.

Proposed stadium site

The proposed soccer stadium is one of several projects planned for the 240-acre former railyard:

Map: Sacramento Bee

More needs to be done. Kelley said his company expects to face another $100 million in what he calls “horizontal infrastructure,” such as streets and utilities. The city and LDK also plan to knock down a tall earthen berm at the north end of the yard, allowing a connection to the nearby River District. There are plans for a bridge over the Sacramento River to connect with West Sacramento’s emerging riverfront area.

The mayor has proposed establishing a financing district to smooth the task for the MLS stadium and the entertainment district. The city would sell bonds to pay for streets and sewers, with debt repayments coming from property tax generated by new development.

Kelley would like the concept extended to the rest of the railyard. Steinberg said he wouldn’t rule that out, but for the time being his focus is on the property Burkle is buying from the Kelleys. “Our agreement is for the stadium site,” Steinberg said.

Steinberg’s predecessors at City Hall have been making deals with railyard developers since shortly after Union Pacific closed the giant yard in the early 1990s. Developers and their grand plans have come and gone, with little progress made.

Georgia-based Thomas Enterprises, in particular, dazzled city officials with a grand design that included commercial development and thousands of housing units – but lost the property to its lender in 2010 after it couldn’t pay its loans.

Signs of momentum emerged in 2014, when the founders of Sacramento Republic FC first proposed an MLS stadium in the railyard. A year later, Kaiser revealed its initial plans to build a hospital. About that time, the Kelleys bought most of the railyard for $18 million. The city owns about 35 acres at the southern end, which includes the Amtrak train depot and the rail platform area.

The land purchases last week by Kaiser and soccer investor Burkle offer an infusion of outside money, and the potential to attract more interest from around California and beyond.

Burkle alone brings a national business portfolio to the soccer site, where he is said to be planning an entertainment district. Burkle is a major investor in upscale hotel chains, and the site would be perfect for a hotel, said Lloyd Greif, a Los Angeles investment banker who’s known Burkle for years. “There’s an opportunity for him to make a killing on the real estate,” Greif said.

But deep-pocketed investors may bide their time before developing.

In Pittsburgh, where Burkle owns the Penguins of the National Hockey League, officials gave him rights to 28 acres of land in 2007 surrounding the team’s old arena. Burkle built a hotel, but the rest of the land remains untouched. Recently, the Penguins hired a prominent redevelopment official amid signs the team wants to jump-start development.

“It’s been extremely frustrating over the years,” said Daniel Lavelle, the city councilman who represents the site. “Ten years later, finally, I do believe we’re going to see development begin to happen.”

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