Business & Real Estate

Sacramento developer completes purchase of downtown railyard

A developer has completed acquisition of the railyard north of downtown Sacramento, where soil contamination of the soil long posed an obstacle to new projects.
A developer has completed acquisition of the railyard north of downtown Sacramento, where soil contamination of the soil long posed an obstacle to new projects. Sacramento Bee file

A Sacramento development firm completed the long-awaited purchase of downtown Sacramento’s abandoned railyard Wednesday, setting the stage for a new era of development that’s expected to include a hospital, Major League Soccer stadium, university institute and thousands of homes.

Downtown Railyard Venture LLC, following more than a year of delay, wrapped up the purchase of the 240-acre railyard from an affiliate of InvenTrust Properties Corp. of Oak Brook, Ill. InvenTrust acquired the property in 2010 after the previous owner, a developer from Georgia, defaulted on his loans.

The sale price wasn’t disclosed.

Downtown Railyard, a company led by veteran developer Larry Kelley, is the first Sacramento business in many years to control the railyard, which opened in the 19th century to serve the transcontinental railroad, for which Sacramento was the western terminus. Once a bustling industrial center, the yard was operated by Southern Pacific and then Union Pacific before closing in the 1990s. City officials have been trying to get it redeveloped for years.

The acquisition “signals a major milestone in our vision of creating an innovation district,” Mayor Kevin Johnson said in a prepared statement.

Anticipating Kelley’s purchase, Kaiser Permanente recently announced plans to build a hospital at the northwest corner of the railyard sometime in the next seven to 10 years, replacing the venerable Morse Avenue hospital. The northeast corner would serve as home to a 22,000-seat, $100 million-plus soccer stadium if the city’s minor-league club, Sacramento Republic FC, can gain admission to MLS.

Kelley is a minority owner of Republic FC, and team officials have made it a priority to get the land deal completed before Dec. 31 as part of a plan to demonstrate the city’s readiness for an MLS franchise. “I congraluate Larry on reaching this milestone and am thrilled to check off another box in our Operation Turnkey game plan,” said Kevin Nagle, managing partner of Republic FC, in a statement released by the team.

MLS Commissioner Don Garber said earlier this year he expects Sacramento will get a team, but he doesn’t know when.

Developing the railyard would effectively double the size of Sacramento’s downtown. The site is expected to include commercial and office space as well as thousands of residential units. UC Davis is considering building a “third campus” at the railyard, focused on research into global food supply issues. A new Sacramento Superior Court building is expected to be built at the southern end of the parcel, not far from an affordable housing complex that’s been proposed.

Kelley, who led the successful development of Stanford Ranch and the revival of the old McClellan Air Force Base, first made his tentative deal with InvenTrust more than two years ago, but completing the purchase has taken far longer than expected. A major stumbling block has related to the cleanup of toxic materials left by more than a century of manufacturing and repairing railroad cars and parts.

In June 2014, Kelley said he had agreed to a plan with Union Pacific and InvenTrust that calls for shared financial responsibility for cleaning up any toxic materials that haven’t yet been discovered. Officials announced Wednesday that the state Department of Toxic Substances Control approved a land-use covenant enabling development to proceed on a majority of the site.

Union Pacific has already spent tens of millions of dollars on cleanup. The city and state have also poured millions into the site, building roads and other improvements to prepare the railyard for development.

The city has pinned its hopes on various developers and development plans for the railyard over the years. A Venice Beach developer who helped transform downtown San Diego signed a development deal with Union Pacific in the early 2000s, bringing plans for a vast entertainment and retailing hub. The firm eventually gave way to Georgia’s Thomas Enterprises, whose dreams for the railyard drowned in debt.

At one point in 2012, after Thomas yielded to InvenTrust, city officials made a tentative deal to build a new Kings arena at the southeast corner of the railyard. The project was soon scrapped by the team’s former owners, the Maloofs, whose successors are halfway through construction on a new downtown arena less than a mile south of the railyard.

The city’s official plan for the site, adopted eight years ago, calls for construction of as many as 12,000 homes. Kelley’s son and partner in the Downtown Railyard business, Denton Kelley, has said his family’s firm expects to reduce the housing footprint somewhat, but is still committed to building several thousand residential units.

Dale Kasler: 916-321-1066, @dakasler