Downtown rail yard development: ‘We feel like it will be the next catalyst’

More than a decade after he pioneered downtown riverfront development, Jeff Scherschligt is back.

The Scherschligt and Haber families, who do business as Pendar Properties, have struck a deal with the city of Sioux Falls to purchase a portion of the 10-acre downtown rail yard property.

The development, Railyard Flats, will build on Cherapa Place, the six-story office and restaurant building they developed in partnership with the city in the mid-2000s.

Renderings by Co-op Architecture.

“The vision continues,” said Scherschligt, who detailed his plan today for the Sioux Falls City Council.

“We have been working on this 15 years. Cherapa is dedicated to the heritage of Sioux Falls, and I think it’s been a great impetus. And we think this is just the next stage between Eighth and Sixth streets and the river and Weber Avenue. It’s just the right thing to do for Sioux Falls, and it’s going to be quality.”

The developers have reached an agreement with the city to purchase a 1.86-acre parcel shown as “C” on this map by the end of the year.

Railyard Flats is an estimated $13 million project that would combine office, retail and 42 apartment units in a 71,000-square-foot building next to the East Bank Depot, which is under construction along Eighth Street.

It would start construction in the spring and open in 2021.

“It is the impetus, the catalyst for the first development on the rail switchyard, and we feel like it will be the next catalyst to develop the rest of the rail yard switchyard over the next five years,” Scherschligt said.

The project complements other development in the area, including 8th & Railroad Center and the East Bank Depot, said Jeff Eckhoff, the city’s director of planning and development services.

“I like that it extends the development further east,” he said. “Jeff is a known entity. We know how he’s going to build. He has an investment with Cherapa, and we know he’s not going to do anything that devalues that. So we’re excited about Jeff making an substantial investment in downtown.”

The city has been working with state and federal officials to fund and approve the relocation of rail lines and the switchyard and ultimately redevelop the rail yard site since the early 2000s.

It took full possession of the land from BNSF Railway about two years ago.

The city then had a false start with redevelopment last year after a proposal by Black Iron Railway LLC to develop 4 acres on the south side of Eighth Street didn’t come together.

Earlier this year, the city invited interested developers to reach out and potentially begin negotiations on any of the five parcels.

“Jeff came to us with an offer and an appraisal, and we conducted an appraisal and went back and forth, and got to the final price and negotiated from there,” Eckhoff said.

The negotiated purchase price is $10 per square foot. Appraising was difficult because of the lack of comparable properties downtown, Eckhoff said.

“So we took a look at what we sold The Cascade (land) for, which was $11.50, and thought that was a place to start, recognizing this is right on an active rail line,” he said.

“We look at each project as what benefits the city and how does the project move the city’s goals for the rail yard forward. We recognized expanding that Eighth Street corridor … the further east we can move it the better for all in activating that property. This checked that box. It’s an investment.”

Scherschligt said he envisions a sustainable approach to the project with a focus on quality, timeless design.

“Cherapa is an example of that commitment,” he said. “It’s good to have density, but you have to keep green in it.”

Scherschligt said he feels “pretty confident 75 to 80 percent of the office and retail is already in place, and the apartments you have to build, and they will come,” he said. “We have experience with The Carpenter and The Edge on Main, and both those products are basically 100 percent full.”

The Sioux Falls City Council will have to approve the land sale as well as a development plan for parcel C. Those votes are expected in November. The total amount paid for parcel C would be $632,710.

No other city incentives are expected to be requested, although the city has agreed to retain a strip of land that it eventually will make part of the citywide recreation trail.

As part of the agreement, the Scherschligt group also has an option to develop parcel B, the 2.2-acre parcel north of “C” for the same square-foot purchase price. The plan is for the developer to close on that property by the end of 2021, assuming a development agreement is approved. That purchase price would be $954,090.

“As your nontypical developer, we are looking for the mix that is right for the community and that also has an investment component,” Scherschligt said. “Our focus is on what’s best for the community and how do we advance downtown and the River Greenway, and we are long-term thinkers,” he said.

Various concepts for Cherapa II include condominiums, a high-end hotel, office space and a potential partnership with the city to build convention space, he said.

A design by the late architect Jeff Hazard shows how that concept could look.

“We’re talking about how this site needs to have a fairly large project of some kind, something that’s going to equal 150,000-plus square feet, and that doesn’t just fall together easily. So we have to find the right combination, the people that have the vision of doing what’s right for the community, who are committed to our quality standards,” Scherschligt said.

“We have the vision laid out. We just have to try and go out and find the tenant base and occupancy to make it work.”

The city would be open to partnering if it made sense at the time, and any incentives offered would become part of an additional development agreement requiring council approval, Eckhoff said.

“We’ll evaluate it when that time comes,” he said. “The development downtown is more difficult. It’s more expensive, especially at larger scale. And if the project warrants it and meets the vision we have for downtown and that’s what’s needed to get it across the finish line, we certainly would consider asking for assistance at that time.”