Sacramento prepares eminent domain suit to seize Kings arena land

The city of Sacramento has talked before about using eminent domain to seize property for the planned Kings arena, and now it’s moving ahead: The Sacramento Bee reports that an eminent domain lawsuit could be filed as early as next week to take control of the former Macy’s building on the proposed arena site.

If you’re wondering whether cities can just force property owners to sell to them for anything they want, including an arena for a pro basketball team, the answer is yes, yes they can. The two conditions necessary are that the property be blighted — and since the Macy’s is closed, courts are likely to okay that one — and that the project be for a public purpose — and assistant city manager John Dangberg told the Bee that it will qualify since the city will get to use it for up to nine high school graduations, concerts, and sporting events each year. Which may seem a slim thread to prove “public purpose,” but courts have gone for a lot less.

One of the strangest aspects of this situation is that the city will actually be suing the state’s public employee pension fund, CalPERS, which owns the Macy’s building. (U.S. Bank holds a lease on it.) In all likelihood, this will all be settled out of court, but it’s a reminder that eminent domain is a huge hammer that cities can wield on behalf on pro sports owners.


11 comments on “Sacramento prepares eminent domain suit to seize Kings arena land

  1. Probably far-fetched, but don’t you think the City has to prove that it does not already own a facility capable of housing graduations and basketball tournaments? Because it does: Sleep Train Arena.

  2. I don’t think courts would wade into that area, Mike. Similarly, they likely wouldn’t direct the city to enter in to negotiations with the leaseholder to see if the building could be leased for the 9 graduations they actually claim to need the land for.

    I’m not a fan of eminent domain or expropriation, but so long as the state/city doesn’t use the “hammer” to force a sale at less than FMV, the argument can be made that the target/victim of the process isn’t really losing anything.

    I don’t know about California (or NY, which seems to truly love using eminent domain…), but where I live expropriation generally results in the property owner obtaining full market value (or, in the case of unique properties, cost to rebuild a similar property elsewhere), plus about 10% for his/her trouble, generally with court costs (if any) covered as well.

    So yes, you lose to The Man. But in the end, losing may never have been as sweet…

  3. I’m not doubting what you’re saying, John, but it sure seems sad that you don’t have to prove that you don’t already own a facility that does the job.

    And really, to the point where it’d cost less to do some maintenance and repair for probably less than the land purchase alone. The Maloofs neglected STA to the point where taxpayers HAD to step in. Nice tactic. Of course, I don’t think they need to. This is the game they play.

  4. The4000 is challenging the legality of the petitions:

    http://www.sacbee.com/2014/01/06/6050057/group-challenges-arena-petitions.html

  5. It is sad, Mike.

    But typically, what other options the city/state/nation has to meet their goal does not enter into the discussion. They “could” build affordable housing/a new stadium somewhere else, but it seems it’s enough for the authority to say “this is where we have decided to build” and the case is closed. Perhaps Neil can add to this, but as I recall the intended land parcel for any eminent domain is considered amongst the sole rights of the authority to choose.

    There is some merit to that notion, given that in many eminent domain cases the land is not currently under anything like highest and best use (an analogy I’ve used in the past is the 20 acre farm in the middle of Manhattan in the 1850s… theoretically, the family could still be farming there if it weren’t for eminent domain… and while Libertarians might defend their right to do so, I don’t think anyone can claim that wouldn’t be hindering “progress”…). But in many cases, the land is more productive and generates more net revenue for the city under it’s existing use than it would as an arena.

    Again, from my POV, the only consideration is that the present landowners are (more than) fairly compensated for their loss… to the point where they can buy a new (comparable) site, build what they had and still end up with a little cash left over.

  6. Ironically, I bet that old department store could easily be rehabilitated into a Target, for way less money, and would end up employing far more people than an arena, re-ignite the mall to a large extent, AND provide far more tax revenue than an arena. That would be a higher and better use.

    Will that happen? Nope. Are we about to turn ourselves into Louisville? I definitely think the odds favor that outcome.

  7. As expected, the Sac City Council approved the plan to sue for eminent domain last night.

    http://www.sacbee.com/2014/01/07/6054839/sacramento-council-votes-to-file.html

    It’s interesting to note that the current co-owner of that property is against the plan. From the article:

    “CalPERS has no objection to the city’s right to acquire the property through eminent domain,” spokesman Brad Pacheco said in an email. “We recognize the significance of the city’s downtown redevelopment efforts and are eager to find a resolution that is in the best interests of everyone involved – including our members, the city of Sacramento and the tenant of the property.”

    George Speir, an attorney representing C-III, the firm negotiating on behalf of U.S. Bank, wrote in a letter to the city that the company objects to the eminent domain plan. Speir wrote in the letter that U.S. Bank had not received a formal offer for the property and that “public interest and necessity do not require the project.”

    —-

    That’s more-or-less in line with what I’ve been saying. While I suppose the money will eventually be enough to make US Bank sell, they sound like they’re considering this the same way I am — that a 30 year lease with Target or Walmart is worth more to US Bank than a sale of the property would be.

    It always gets back to the same thing, though, doesn’t it. There still isn’t a formal, independent study about the state of the current arena, or about the benefits of the new site. This is the one constant in 100% of these deals.

  8. One thing I’ve wondered is who will provide the cash to purchase this property. The City says this doesn’t increase the size of their portion, which would imply that the developers would pay that bill. But if the developer buys the land and then donates it to the City (how else would it work? I don’t see it.), are there tax consequences to the City for receiving a gift of that size?

  9. MikeM: According to the original term sheet, the kings will have to purchase the land. “The Investor Group shall be responsible for, and shall lead all phases of the planning, environmental review, design, land acquisition, development, and construction of, the ESC and related infrastructure.” (See page 4 of the 19 page term sheet or page 21 of the 36 page PDF.)

    The revision to the term sheet is silent as to how ownership would be transferred to the city. The full language from the revision reads: “The first change would provide for the City’s ownership of the land under the ESC (arena). This consolidated ownership of the building and land eliminates the need for a ground lease between the City and SBH and greatly simplifies the legal agreements and financing. The City’s ownership of the land does not increase the City’s financial participation in the ESC project costs.” I noticed that there is no mention of the loss of property taxes the kings would have had to pay on the land under the arena.

  10. A possible setback for arena proponents?

    http://www.sacbee.com/2014/01/09/6059660/attorney-asks-to-subpeona-sacramento.html

  11. The City filed its eminent domain suit this evening.

    http://www.sacbee.com/2014/01/09/6060362/city-of-sacramento-files-eminent.html

    The funding source for this is the Kings ownership group, which apparently believes this land is worth about $13M. I understand that some eminent domain cases have been rejected when courts determine that governments are exercising this power on behalf of private companies.

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