Sacramento’s soccer deal is dead for now. Can the downtown Railyards thrive without MLS?

For 25 years, Sacramento’s historic Railyards have been touted as the spot where a new downtown would emerge.

Talk about a labored birth.

Drive past the sprawling site on Interstate 5 and you’ll see more than 200 acres of empty soil and abandoned locomotive shops. A few streets have been paved and traffic lights have been installed, and some construction cranes have sprouted. But the only inhabitants are homeless people in pitched tents. There’s also no soccer stadium.

The dream of a sports franchise jump-starting the long-awaited redevelopment of the Railyards got a rude awakening last week. Billionaire investor Ron Burkle pulled out of the ownership group for Sacramento Republic FC, which had been granted admission to Major League Soccer. Burkle’s decision means no MLS team and no stadium at the sprawling former Union Pacific site, unless another billionaire investor steps in.

Mayor Darrell Steinberg said he has been fielding calls from investors interested in replacing Burkle and meeting with business leaders on how to salvage the MLS project.

But at a pivotal moment, with the coronavirus pandemic easing and the region’s population growing with a fresh surge of Bay Area transplants, community leaders are wrestling with questions about the site that connects Sacramento with its past but has sat empty for too long.

Can the Railyards — a site that, when fully developed, would nearly double the size of downtown — prosper in the near-term without MLS?

Barry Broome, the region’s plain-spoken corporate recruiter, said the site is an all-too-visible symbol of Sacramento’s inability to step up and persuade corporations to invest in Sacramento and diversify an economy still heavily dependent on state government.

“That Railyard’s been sitting there empty since 1994; what is the economic message that we’re sending to everybody in Northern California, nationally and globally?” said Broome, president of the Greater Sacramento Economic Council. “We want to be known as an up-and-coming community, but you’ve got this, you know, incredibly blighted property.”

Others say his outlook, perhaps colored by the disappointment of Burkle’s departure, may be overly pessimistic.

Start with the fact that the soccer plan isn’t completely dead. MLS officials said they still like Sacramento as a soccer city. If Steinberg and business recruiters can land new investors, Sacramento might still have a leg up on the other cities that want to secure the 30th — and, for now, final — MLS franchise.

“We’re not missing a beat,” Steinberg said. “We are seeking to ‘plug and play’ a willing investor into an already negotiated multi-party agreement” with the city, the league and the downtown Railyards owners.

When will Kaiser hospital be built?

Despite its glacial progress, the Railyards is in fact beginning to “go vertical,” as developers put it.

Over the next two years, the A.J., a 345-unit housing project, will open. So will the new 17-story Sacramento Superior Courthouse that broke ground last fall. They will house the first residents and workers on the historic site since the days when the yard teemed with thousands of people employed by Southern Pacific and later Union Pacific.

The A.J. is on Railyards Boulevard at the northern end of the site, about halfway between the stadium location and what’s planned to be the future home of a giant Kaiser Permanente hospital.

The Kaiser project, at the northwest corner of the Railyards, would be huge, roughly the size of Arden Fair mall. Kaiser hasn’t said when the hospital will be built. It could be as much as four years away.

In the meantime, the COVID-19 pandemic is receding. Denton Kelley, the rail site’s chief developer, said he believes the demand for retail and office space will rebound and the Railyards will succeed, with or without soccer.

The managing principal of LDK Ventures, which owns about 200 of the Railyards’ 240 acres, Kelley doesn’t share Broome’s dour view of the site’s current state. COVID-19 has flattened downtown development in practically every city, and it would have been a mistake to try to market office or retail space to corporations over the past year.

“The last year has thrown everybody a curve ball, especially urban development,” Kelley said. “Employers will get there and we will market to them ... as the world normalizes.”

Others agree. David Brandenburger, a broker with commercial real estate firm Newmark, said the appetite for space will largely recover in the post-COVID era.

“The office is not going away,” he said. “There’s still a desire to be out and about.”

The Railyards can do well, even if the soccer project can’t be revived.

“It’s just going to proceed at a slower speed,” he said.

Everyone wants soccer

One thing practically everyone agrees on: A Kaiser hospital would serve as an attractive anchor tenant, but a soccer stadium would be the most powerful catalyst of all.

Kelley said Major League Soccer would brand the site as a place for young workers, tech companies and entrepreneurs at a moment when many in those ranks are looking to leave the overpriced Bay Area and relocate to more affordable and spacious mid-sized cities such as Sacramento.

Map of proposed stadium site

Map: NATHANIEL LEVINE

“The one thing I am most optimistic about is that with remote work, more people are willing to live in Sacramento who have four-year degrees, masters degrees, an educated workforce,” Kelley said.

Yet Sacramento and its Railyards are competing with tech-attractive cities like Austin, Denver, Portland, Ore., Phoenix and Dallas. That, says Broome, is why the city must make something of the Railyards now, not tomorrow, and start by making good on its MLS dream.

“The MLS stadium will activate the Railyards, which will activate the waterfront, which will change our reputation from a community that’s not quite ever ready to get to the next level,” he said.

In his mind, that means the city must increase its public subsidy for a stadium beyond the $33 million in tax rebates and other incentives the City Council approved two years ago. Otherwise, the MLS franchise will be awarded to Phoenix or San Diego or some other city, Broome said.

“We have to increase the strength of our bid and that means incentives,” Broome said. “We have less on the table. We’re less aggressive than these other MLS markets, and when you’re doing less, you get less.”

Steinberg, who negotiated with Burkle and the MLS, dismissed Broome’s comments, saying the city is taking the correct approach by soliciting new investors to step into the existing framework for a soccer deal.

“Our strategy is to take what we have accomplished over the last two years,” the mayor said, “including already defined parameters for an agreement and then find an investor and plug them into that.”

Different political era since Kings arena built

But the days when the city can toss $200 million into a sports arena, as it did when it helped finance construction of Golden 1 Center in 2014 for the Kings, could be over.

Seven years later, the city is seeing an alarming growth in homelessness, as well as other social ruptures amid the economic dislocation from COVID-19. Fights over city dollars for social services, underprivileged youth programs and affordable housing have become front-burner issues at City Hall. So have equity issues, including questions posed by social justice protests over how city funds are spent.

Steinberg has long argued that Sacramento can do it all, whether it’s the soccer stadium or programs for low-income residents; it’s a key reason he championed Measure U, the 2018 sales-tax increase that’s raised an estimated $50 million a year “to build and bolster an inclusive economy, grow jobs and provide housing that is affordable to all,” according to the city’s website. Yet the spending decisions have been controversial at times, as when the City Council earmarked $45 million for the police department last June.

In the meantime, Sacramento’s political landscape has tilted to the left. That’s manifested itself in the fight over Aggie Square, the $1 billion medical research and business center proposed near the UC Davis Medical Center complex. As the surrounding area continues to gentrify, two lawsuits have been filed against Aggie Square by groups arguing that the city must invest in the nearby lower-income neighborhoods.

A similar fight is likely if the city considers increasing its subsidy for an MLS stadium. Advocates say it wouldn’t be right to get into bed with billionaires when it has not succeeded in helping thousands of residents sleeping on the sidewalks and many more who can barely afford housing.

Councilwoman Katie Valenzuela, who was elected as the downtown Sacramento representative last year as an advocate for social services, said it’s time to put homelessness, poverty and equity issues on equal terms.

“I think soccer is great and it would be really cool to have an MLS team and I hope it happens,” she said, “but if the city is going to commit resources, there has to be strong community benefits, similar to the conversation we’re having at Aggie Square.

“It’s not a matter of hoping those benefits will trickle down. To me, it’s applying those benefits up front and ensuring the community is the primary beneficiary of any investment, including MLS.”

Business leaders such as Broome say making Sacramento more business-friendly doesn’t mean ignoring social issues. To the contrary, he said a city with rampant homelessness and other social ills is unattractive to corporations and a drag on the economy.

“The business community is going to have to step in and provide market support for the housing challenge and the business community is going to have to show leadership and write checks to help solve this homeless problem,” he said.

For Sacramento, one false start after another

The Burkle affair is just the latest in a long history of fits and starts at the 240-acre Railyards site.

The yard opened during the 1860s, when Sacramento was the western terminus of the Transcontinental Railroad, and served as a manufacturing center as well as a transportation point owned by various railroad companies. Thousands of employees worked there building train cars, upholstery — even silverware for the dining cars.

Union Pacific shuttered operations in the 1990s and since then a succession of developers, and ideas, have come and gone.

Southern California developer Jon Jerde, who designed the Bellagio Casino in Las Vegas, was going to build a glittering city of thousands of workers and residents. After he departed the scene, Georgia developer Thomas Enterprises stepped in with a similarly ambitious vision in 2006. The city pulled together hundreds of millions of dollars to clean up toxic waste and begin paving roads, and hopes soared. But Thomas lost the property to lenders in 2010.

LDK Ventures purchased most of the property in 2015, and a soccer stadium loomed as an immediate possibility. Kelley’s father, Larry, was an early investor in Republic FC.

About the same time the Sacramento-based Kelley family jumped in, Kaiser Permanente announced it would build a new hospital at the Railyards to replace an existing hospital that needs a massive overhaul for earthquake safety.

Kaiser Permanente closed on a $33 million land deal in January 2019 to build a hospital. That same week, the city announced that Burkle, a billionaire grocery and development tycoon, would purchase Republic FC and lead an effort to win an MLS franchise. Burkle would build a stadium in the Railyards’ northeast corner and develop the surrounding acres into restaurants and stores.

“We are now light years ahead,” Steinberg said at the time.

Two years later, the old pattern seems still in play. Kaiser, at least, says its hospital project continues to move ahead.

“As with any major construction project, timelines often adjust during the process,” said Sandy Sharon, Kaiser’s senior vice president and area manager, in an emailed statement to The Sacramento Bee. “When we first announced our plans in 2015, we estimated the entire process would take approximately 7-10 years. That is what we continue to work toward.”

Such a timeline would take the project out to as late as 2025.

Would MLS bring cachet and cash to Sacramento?

Burkle’s departure came, ironically, as Sacramento was enjoying a moment.

The COVID-19 pandemic has driven young tech workers — who’ve had to work remotely — out of the Bay Area. Many have settled in Sacramento for its less-expensive lifestyle. Sacramento and San Diego were the only two California metro areas that had a net increase in professional workers last year, according to a study by the Bay Area Council.

City leaders figured an MLS team would serve as another magnet for the Bay Area tech crowd — and maybe the companies they work for.

“Having a major league franchise … is such a coveted branding characteristic for a market,” said Jack Boyd of The Boyd Co., a New Jersey firm that consults with companies contemplating new headquarters or branch offices.

Boyd said corporations look at the presence of sports teams “as a recruiting tool” when they look for talent.

Sports economists such as Roger Noll, a professor emeritus at Stanford University, are skeptical of the claim that sports bring economic salvation.

Noll said studies have shown corporations are lured to communities by good schools and amenities such as public parks. He said he isn’t aware of a single study showing that a ball club can attract companies.

“The attempts to find that have come up empty,” he said.

That doesn’t mean the city shouldn’t subsidize construction of an MLS stadium, Noll said. But if it does, it should be aware of the limitations of what the subsidy would bring in return.

“There is no measurable or detectable net economic benefit to having a professional sports team locate in a city,” Noll said.

This story was originally published March 5, 2021 at 5:00 AM.