Sacramento, California’s booming downtown may double in size with Railyards project

Sacramento Mayor Darrell Steinberg has a long history with the city’s Railyards, an expanse of rail lines and brick buildings that was once the western terminus of the transcontinental railroad. Shortly after Steinberg started his political career in city council in 1992, he remembers being shown elaborate models of the homes and offices that would soon fill the 244-acre space. In the 2000s, when he served as a member of the State Assembly, he remembers Gov. Arnold Schwarzenegger chiding him—“Hey, Steiny, what are you going to do about those railyards!”—and reminding him that the former Union Pacific property was the first thing visitors saw when driving in from the airport. “We can do better,” the governor added.

For decades, this vast site has remained underutilized, requiring environmental mediation— locomotives were maintained, repaired, and cleaned in these lots after criss-crossing the continent—and extensive capital and vision. But with a number of headlining projects and big-name investors lined up, the Railyards may finally be leaving the station.

“It was always a ‘wouldn’t it be great’ project, but now it’s a ‘look what we’re actually doing’ project,” says Steinberg. “Only now are we beginning to fulfill that promise.”

Health care giant Kaiser Permanente purchased 18 acres in the Railyards for a future medical center earlier this year. A new $490 million state courthouse will soon take shape in the development’s southwest corner. And a brand-new $250 million soccer stadium, expected to open in 2022 and host the city’s just-announced MLS franchise, will add another anchor to a development that would nearly double the size of Sacramento’s downtown. For scale, the Railyards is roughly eight times larger than New York’s Hudson Yards, this year’s big-ticket megadevelopment.

“The fact that major stakeholders are investing hundreds of millions in the Railyards tells the story,” says Steinberg. “People in and outside Sacramento are bullish on the city. This is a vital market sign.”

A second coming for Sacramento’s downtown

Sacramento is undergoing housing growth and a downtown renaissance. In keeping with a sense that Sacramento is redefining itself, the sweeping new Railyards neighborhood connects a number of recent and upcoming projects in the city. The eastern edge is a mile from the new Golden 1 Center, a high-tech, showplace arena for the city’s NBA franchise, the Kings, and a catalyst for new hotels and businesses in the nearby Downtown Commons district. The western edge of the Railyards borders the Sacramento River, which may soon be the recipient of $47 million in investment from the city to create new parks, bars, and even a concert venue.

Sacramento isn’t used to this kind of growth. From 1950 to 1970, Sacramento’s downtown shrunk, from 58,000 to 27,000 full-time residents, as businesses and residential development decamped for the suburbs and the city core became desolate after dark. Now, as the central business district reaches critical mass, the ability to expand to the Railyards means more housing (up to 10,000 units are possible, per current plans), more businesses, expanded entertainment options, and momentum.

“With downtown and midtown becoming so popular in the last 15 or so years, the market is begging for more units,” says Ryan Lundquist, who runs the Sacramento Appraisal Blog and writes about local real estate. “Throwing in a soccer stadium is huge, and adding up to 10,000 housing units is absolutely massive. The market is very ripe for this development.”

Jafar Mirlohi

One of the key parts of this development, the $250 million soccer stadium, has the support of Beverly Hills billionaire Ron Burkle, whose investment has helped make the city’s Republic F.C. soccer club the latest MLS expansion team. For Burkle, who invested in both the 14-acre stadium site and the immediate 17 acres around it, it’s a winning deal. He’ll front the infrastructure costs, which the city will reimburse through a special tax, and own the entertainment and retail area around the stadium, which will increase in value with proximity to the hybrid soccer field and entertainment venue.

For Sacramento, the stadium deal is a dream, at least compared to the multimillion-dollar incentives that many cities shell out for a pro sports team (including the $255 million the city contributed to Golden 1). The city will end up paying just $33 million for the new soccer stadium, mostly for infrastructure needed to redevelop that corner of the Railyards, while Burkle and the other owners pay all the construction costs. Plus, the stadium for the Republic F.C. will be knit into the urban grid, near walkable retail and a new light rail stop, not surrounded by seas of parking lots.

Architect Gerardo Prado of the firm HNTB, who helped design the 20,000-seat stadium, says the building, surrounded by a landscaped plaza, is meant to be an extension of the surrounding streets. Inspired by the urban soccer stadium where he attended games while growing up in Argentina, HNTB’s design features a 360-degree canopy, allowing fans to look back at the old downtown, while seeing the new downtown take shape across the pitch.

HNTB

The catalyst that kickstarted the Railyards

The Railyards has cycled through numerous owners and plans since Union Pacific sold the site in 2006. Past owners were stymied not just by a lack of interest from the market at large and the Great Recession, but also by significant environmental concerns over the development site, especially areas near former maintenance facilities. (The site was originally built on a swamp, and once included foundries that forged the silverware for dining cars.)

But after decades of remediation by the railroad and subsequent owners, and amid rising demand for an expanded downtown, the industrial site now presents unique opportunities. It was purchased for $18 million in 2010 by Downtown Railyard Ventures, a subsidiary of LDK Ventures, a homegrown investment firm run by local developers Larry Kelley and his son Denton Kelley. The firm is known for, among other things, turning an Air Force base into a business park in under a decade.

Michael Ault, executive director of the Downtown Sacramento Partnership, a local business group, says many of the historical vaulted brick buildings at the Railyards that once served as repair shops hold great potential as performance spaces, public markets, even the home for new corporate HQs or startup hubs. And it’s really about to happen this time; utilities and infrastructure across the Railyards are near completion, initial plans for the first phase of housing are ready, and when the MLS starts playing at the new stadium, the Railyards will have an instant traffic generator.

“Step back and look at the Railyards, and you’re literally looking at the ability to make a new downtown adjacent to the existing one,” Ault says.

It’s also coming at just the right time. Sacramento is “struggling” to create enough inventory for all those interested in property downtown, according to Ault, and is markedly slower than other big cities when it comes to apartment construction. From 2015 to 2018, just 1,000 units came online in the city center, and only 1,100 are currently under construction.

“This project will help us begin to create downtown as an urban neighborhood,” he says. “Close to 100,000 people work here during the week, and we see so many who want to be downtown, to be able to walk to work and take advantage of the urban renaissance taking place.”

Courtesy Downtown Railyard Venture, LLC

There’s also the question of affordability, which isn’t just impacting the Bay Area. Sacramento has seen rents skyrocket as home prices begin to cool off; the city recently passed rent control, and Steinberg says that inclusive development and tackling the housing crisis and homelessness in “very aggressive ways” are key parts of his mayoral agenda. He’s pushed for a citywide commitment to affordable housing, but the Railyards’s contribution to that plan hasn’t been defined yet.

The massive, long-term redevelopment project—it may take decades to complete, and the Kaiser facility wouldn’t open until 2025—also might kick off right as recession fears creep into the market. Professor Robert Wassmer, who heads the department of public policy at California State University, Sacramento, questions whether, absent some huge new reason for growth, such as a corporate relocation, Sacramento can support enough economic activity to double the size of its downtown without taking business away from other parts of the metro area.

“The employment base here is still state government and health care,” he says. “Is there enough new business to sustain the entire Railyards without decline elsewhere in the city? Or can the Railyards become some kind of tech district and lure new companies?”

There’s an argument to be made that the Railyards would be a perfect place for a new Bay Area-adjacent office location. The old buildings would be perfect for a tech campus, and existing Amtrak connections can get workers to San Francisco in two hours (a number of initiatives in the works aim to decrease travel times and add new connections to parts of the Bay Area). As Steinberg argues, the time has finally come for the Railyards to become a destination again.

“The idea of downtown has changed,” he says. “What we want is cleaner industry, more businesses, more nightlife, more food; we want the Railyards to be walkable and bikeable,” he says. “We’re taking advantage of a once-in-a-generation opportunity.”