City takes possession, but cloud remains over last parcel needed for new Kings arena

The city of Sacramento holds the keys to the old Macy’s men’s store at Downtown Plaza, but a new legal challenge makes it unclear how soon it can be torn down to make way for the new Kings arena.

City officials took possession of the vacant building Tuesday afternoon, along with the keys. The handoff came 12 days after the city was awarded control of the property by a Sacramento Superior Court judge.

Still, the building remains under a legal cloud. Its owners took the case to the 3rd District Court of Appeal last week, saying they should remain in control of the property, and the appeal remains alive even though the city now controls the building.

Should the appeals court reverse last month’s Superior Court ruling, “we’d no longer have the rights to the property,” said Assistant City Attorney Matthew Ruyak.

That could interfere with plans to begin demolishing the eastern portion of Downtown Plaza later this spring, and possibly jeopardize the entire project, city officials said.

However, the owners of the vacant Macy’s building said their rights are being trampled in the rush to open the new arena. “The city’s need is not grounds for taking shortcuts and ignoring the (owners’) property rights,” said George Speir, the owners’ lawyer, in papers filed with the Court of Appeal.

Speir represents a group of mortgage-certificate holders who own the building. The underlying land is owned by CalPERS; the pension fund isn’t fighting the city’s effort to gain control of the property.

The city filed an eminent domain suit after purchase negotiations stalled between the owners of the real estate and the Kings. Last month the city won custody of the building so the Kings could proceed with the arena project; a jury will determine the purchase price in the months to come.

Demolition of the eastern portion of the mall won’t occur for several more weeks at the earliest, regardless of what happens in the fight over the Macy’s building. The city still needs to complete its environmental review, finalize a development agreement with the Kings and issue bonds to pay for its share of the project, all of which aren’t expected to occur until sometime in May.

Nevertheless, city officials are pushing to fend off the appeal and keep the Macy’s building within its grasp.

“Failure to achieve possession of the property by April 2014 will put the (arena) project at significant risk,” said Assistant City Manager John Dangberg in papers filed with the Court of Appeal last week. Development “will come to a halt,” he added.

City officials say spring demolition of the mall is essential to keeping the $448 million arena project on track for a 2016 opening. If the timetable were to slip by more than a year, delaying completion beyond 2017, the NBA has the right to buy the Kings and move them out of Sacramento. That option is part of an agreement the Kings’ new owners made with the NBA when the league vetoed the plan by the previous owners, the Maloofs, to sell the team to a group that would have moved it to Seattle.

But the mortgage-certificate holders who own the vacant building say they, not the city, should keep charge of the structure while the court case plays out. They said in court papers that the arena project wouldn’t be hurt if they got to keep the building “while this court sorts out the merits” of the case.

The mortgage-certificate holders argued in court papers that the city botched the eminent domain process and wasn’t entitled to take the property. Among other things, they say, the City Council resolution in January authorizing the lawsuit covered only the ground beneath the building, which is owned by CalPERS.

Court papers indicate that the Kings and the building owners are several million dollars apart on price. Although it’s the city’s legal fight, the Kings would ultimately pay for the property. The team already spent $36 million buying the rest of Downtown Plaza.

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