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Railyard deal pulls into station

Originally published: 12/30/06

After a week of tension and last minute hold-ups, Georgia developer Thomas Enterprises closed escrow Friday on the downtown Sacramento railyard -- birthplace of the transcontinental railroad and centerpiece of the city's history.

At the same time, the city of Sacramento took ownership of the train station on I Street, a key piece of the region's rail transportation system since 1926.

Gathered in front of the historic, red-brick train depot, city officials sipped champagne with representatives of Thomas Enterprises as they announced the transfer of the railyard and celebrated its role in the planned extension of downtown.

"For 150 years this site has nurtured the city of Sacramento; now it's time for it to become part of the city of Sacramento," said Richard Rich, Thomas Enterprises' development director, as he popped open a bottle of champagne.

The head of the company, Stan Thomas, did not attend. He will attend a formal ceremony in January, said vice president Suheil Totah.

Totah would not reveal the price paid to Union Pacific for the railyard, citing a confidentiality agreement with the railroad.

Negotiations with Omaha, Neb.-based Union Pacific proved difficult and complex until the end. The deal, scheduled to close Thursday, was delayed after a last-minute dispute over who would pay to move an underground pipe.

Plans for the 240-acre property -- now a contaminated Superfund site -- include a new transportation complex, a railroad technology museum and public market inside the historic shop buildings, plus 10,000 housing units, stores, offices and hotels.

A Bass Pro fishing outlet has signed a letter of intent to be the first retail tenant.

"The city of Sacramento is really relieved to have the escrow close," said Mayor Heather Fargo. "Today is kind of like a dream come true."

Totah noted that he and other members of the development team had been working on the deal for four years.

In his address to the media, Totah thanked so many people who had worked on aspects of the effort that his remarks resembled an Oscar acceptance speech.

"Many people did not believe in us. ... But we never gave up. We never let go of our dreams," Totah said.

Crucial to closing the deal was $55 million from the city of Sacramento. That money bought the city immediate control of the depot and eight surrounding acres.

Once a fair price is determined through negotiation and possible arbitration, the city will apply any money left over from the depot purchase to another 24 acres it plans to buy for a transportation complex serving trains, buses and light rail.

In addition to the city money, Thomas received a loan for about $16 million from Union Pacific, according to documents filed with the Sacramento County Recorder.

Deborah Pacyna, a spokeswoman for Thomas Enterprises, said those two sums did not equal the entire purchase price, however.

She stressed that Thomas Enterprises has already spent about $40 million on the railyard deal in planning and legal expenses.

The company also has promised to finish the toxic cleanup begun by Union Pacific, a task expected to take about two years. Totah would not say how much the remaining cleanup is expected to cost.

Decades of uncontrolled dumping of diesel fuel, heavy oil, battery acid and other chemicals into the ground in the once-bustling industrial complex left extensive groundwater and soil contamination. The groundwater is being pumped out and cleaned -- a process that will take many years, but won't affect development.

About two-thirds of the contaminated dirt has been excavated thus far, Totah said. Progress slowed recently as UP negotiated to sell the property.

"We're going to be expediting the cleanup of the site in January, so you're going to be seeing a lot of activity taking place," he said.

Thomas Enterprises has obtained an insurance policy to cover unexpected discoveries of additional pollution.

Transfer of the railyard to a private developer is a historic step in the redevelopment of one of the largest urban "infill" sites in the nation.

The problem of how to get things moving at the dormant yard has vexed politicians for years. The last crews in the rail shops, once the city's largest employer, punched out in 1999.

"I never thought I'd be spending most of my political career on this site," Fargo said of her longtime role as railyard booster.

Over the years, local officials have repeatedly complained about the difficulty of getting Union Pacific to move more to get its Sacramento properties restored and redeveloped.

UP didn't say much about the transfer.

"We've been working on the sale of the property for some time, and it has finally come to a culmination," UP spokesman Mark Davis said upon hearing the deal had closed.

Mike Casey, the UP official in charge of local real estate deals, did not attend the news conference and could not be reached for comment.

Local preservationist Kay Knepprath applauded the change in ownership.

"Enough of having to deal with UP, whose minds and hearts are in ice in Omaha," she said. "We're ready to celebrate."

Knepprath and other activists have long fought for preservation of the 1926 train station and were instrumental in a compromise to move it about 300 feet north and make it the hub of the city's planned transportation complex.

Knepprath said she is excited by Thomas' plans for the railyard.

"This development is really going to take our city up a notch," she said. "We're going to surpass all those good things Portland was able to do. We'll have something even better."

Among its many other components, the plan for the railyard includes a potential site for a new Kings arena within a sports and entertainment zone. But Sacramento County voters in November rejected a proposal to raise sales taxes by a quarter cent to fund its construction.

Fargo said a piece of land is still earmarked for an arena, "if anyone out there can help us figure out a way to pay for it."

CHRONOLOGY

The railyard, Sacramento's historic centerpiece, has been among its most vexing properties. Friday's sale sets the stage for finally developing the site, which started out as a rail hub 143 years ago.

1863: Ground broken at the foot of K Street for the transcontinental railroad. Central Pacific starts construction of railroad works on land donated by the city on the banks of Sutter Lake, also known as China Slough, at Sixth and H streets. The lake is gradually filled in until it no longer exists.

1926: Current passenger station completed.

1930s and 40s: The heyday of the railyard. It covers 240 acres and is the largest rail construction and repair complex west of the Mississippi. At its peak, employed more than 4,000 workers.

1975: Station is placed on National Register of Historic Places.

1989: Local developers Phil Angelides, Angelo K. Tsakopoulos and Sotiris Kolokotronis offer nearly $50 million for the historic depot and surrounding 37 acres from Southern Pacific Transportation Co. The group later walks away over concerns about toxic waste at the site.

1994: State certifies the 37 acres as clean.

1994: City Council adopts SP plan for 9.6 million square feet of office space and 2,700 dwelling units. Plan eventually is scrapped.

1995-96: New 16-story federal courthouse built on southern edge of railyard and hailed as anchor for further redevelopment. It remains only piece of the SP plan ever carried out.

1996: Mayor Joe Serna Jr. unveils plan to lure Major League Baseball team with hopes of new railyard stadium. Plan goes nowhere. A minor-league stadium is built in West Sacramento instead.

1996: Union Pacific acquires SP railroad, assumes ownership of the railyard.

1999: Last repair shop workers punch out for good. UP demolishes about 80 percent of buildings but preserves most historic structures. State leases some for restoring rail cars.

1999-2000: Mills Corp. of Arlington, Va., announces plan to develop the 37 acres certified as clean. Mills later pulls out, citing lack of city support.

November 2002: UP and developer Millennia Associates agree to transform 70 acres into restaurants, stores, offices and housing, along with transportation center and railroad museum. Millennia eventually chosen as master developer for all 240 acres.

December 2003: Millennia unveils plan for up to 4,500 housing units, office towers and shops. A spot for a Kings arena is set aside.

July 2004: Millennia and UP announce the property is in escrow. Deal expected to close by year's end.

December 2004: Local developers David Taylor, Tony Giannoni and Angelo K. Tsakopoulos offer to buy railyard. UP continues to negotiate with Millennia.

June 2005: Millennia submits new plan for 10,000 housing units.

March 2006: Plan refined yet again to include arts and theater district. Millennia's financial backer, Georgia developer Stan Thomas, moves to the forefront of negotiations with city and UP. Suheil Totah, local lawyer representing Millennia, goes to work for Thomas Enterprises with 50 people working on the effort.

November 2006: Sacramento voters reject plan to raise sales taxes by a quarter cent to finance a new railyard arena for the Kings. Stan Thomas donated $1 million to the campaign for Measures Q and R.

-- Bee research

The Bee's Mary Lynne Vellinga can be reached at (916) 321-1094 or mlvellinga@sacbee.com. Bee staff writer Terri Hardy contributed to this story.

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