Sacramento plans to tap its economic innovation fund for several million last-minute dollars to finish rehabilitating the city’s 90-year-old train station at Fourth and I streets.
The rationale: The extra money is needed to make the historic Sacramento Valley Station attractive as office space to startups and high-tech companies.
The City Council formally agreed this week to dip into its Innovation and Growth Fund to add as much as $2.4 million to the project. The vote was taken Tuesday without public or council discussion.
The decision solves a financial dilemma at the depot. The city has been working for several years fixing the once-dilapidated depot so it can continue to serve as an Amtrak depot, and to open unused space for rent. Potential uses, city officials say, could include offices, retail outlets, a restaurant, cafe, rooftop terrace and brew pub.
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The effort ran into a wall last fall when the city began marketing the building’s 29,000 square feet of available space. City officials say several interested potential tenants said they wanted the city to pay for additional improvements to make spaces move-in ready – costs that weren’t in the budget and are often absorbed by tenants.
“As we started walking them through, it became clear that, instead of unfinished walls, they wanted things (all) in place,” Assistant City Manager Fran Halbakken said.
The innovation fund, formerly called the Economic Development Fund, was revamped by the City Council last year at former Mayor Kevin Johnson’s urging to focus on providing financial incentives to help entrepreneurs, startup companies, and tech companies set up shop in Sacramento. Money for the fund comes mainly from the sale of surplus city-owned land.
New Mayor Darrell Steinberg has stepped in strongly in his first weeks in office to take advantage of the fund, embracing a broad definition of what projects can qualify for the money.
At Steinberg’s urging, the City Council this week also allocated $500,000 from the fund to pay artists and arts programs to experiment with projects and concepts that might strengthen the arts in Sacramento and make the city more attractive to new businesses.
The depot could serve similarly as an economic development magnet for new businesses, Steinberg spokeswoman Crystal Strait said.
“There is real potential for making this an innovation hub in the railyards,” she said. “The vision for the depot fits in with our goals for creating jobs and new companies around innovation, entrepreneurship and new technology.”
The depot sits at the front of the shuttered 240-acre railyard just north of downtown, an expanse of land that’s expected to become a major growth area in the next decade, with a Kaiser medical complex, a major soccer stadium and a state railroad technology museum, as well as housing, businesses and community gathering spots.
The city already has sunk a substantial amount of money into restoring the depot, which it bought a decade ago from Union Pacific Railroad as a fixer-upper.
The current rehabilitation project started with a $30 million estimated budget and $5 million contingency for overruns and unforeseen issues. That budget has since grown to $36.5 million due to what project officials say are unexpected issues that came up as crews dug into the building’s walls, basement and attics.
Fifteen million dollars of the rehabilitation project fund comes from a federal grant. The rest comes from a part of the city’s Measure A transportation sales tax funds. Those funds cannot be used, however, for tenant improvements, Halbakken said.
The rehabilitation project, which is largely finished, included new ticketing counters and back offices for Amtrak.
The building has large areas of empty space on the main floor and upstairs, as well as a useable rooftop with panoramic views.
Valley Vision, a coalition of business and political leaders, is one of the potential tenants that is asking the city to spend more. CEO Bill Mueller, who says he thinks Valley Vision would fit well in an innovation environment, said the depot is a beautiful piece of history with antique glass, high ceilings and wood posts that make it especially attractive to creative businesses.
“But fast forward to now, the 21st century, where you have a variety of demands placed on modern businesses,” Mueller said. “There is more that needs to be done to make sure that tenants have the facilities they can use on day one.”
Mueller declined to say what add-ons his organization wants the city to pay for.
City Councilman Steve Hansen said tapping the innovation fund makes sense to him, given that the city has designated the entire railyard as an innovation district.
“To keep the depot relevant, we have to evolve it,” he said.
Ken Turton, a commercial real estate broker downtown who has toured the depot, lauded the mayor for pushing the building’s potential as an incubation site for new-style businesses. But he warned that those businesses tend to have high turnover.
“I think the mayor’s on the right track,” Turton said. “You have to design the space that allows for multigenerational use, with minimal renovation costs down the road. The turnover in incubation space can be frequent.”
City officials declined to say what businesses the city is talking to about moving into the depot. Halbakken, the assistant city manager, said the city is talking with only a handful of companies about leases, but wants to talk with more.
The $36.5 million project should be completely done by next month, she said, but the estimated $2.4 million in new tenant improvements will come over time as the city signs lease deals.