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Cleanup of historic Southern Pacific railroad shops is expected to begin late this month as the next phase of the Sacramento Railyards project kicks into gear.

Hazardous materials including lead paint, asbestos, metals and other industrial toxins need to be removed from the shops, which were built starting in 1868. Georgia developer Thomas Enterprises has put the abatement project out to bid and expects to award the contract in the next few weeks, said Richard Rich, development director for the Railyards project.

In its heyday, Southern Pacific practically owned the town. The railyards drove Sacramento's economy, and nearly a third of all the city's residents worked there. The shops lay at the center of the railyards.

The Railyards project, the country's largest infill project, will not only double the size of downtown, but the mixed-use district is being designed to recapture the importance of the former railroad site. The Central Shops being redeveloped near the Sacramento Valley Rail Station depot are the key to that, Rich said.

"Right now, the depot is kind of in a forgotten corner of downtown," he said. ""That'll put enough urban fabric around the depot that it becomes the center of the city again."

On Monday, the city won $55.8 million in Proposition 1C infill redevelopment funds from the California Department of Housing and Community Development. About $30 million will go to the $6 billion Railyards project. The new funding brings the project's state public bond funding to $115-$120 million, although none of that has been received, said Thomas Enterprises Vice President Suheil Totah.

The Railyards project also won $20 million in federal stimulus money this year and another $8 million in federal funds for a freeway connection project. The city and developer are pursuing another $100 million in federal stimulus money to help fund the city's future intermodal transportation facility. Developments are expected soon on the city's bid to get National Enviromental Policy Act approval for the facility.

The city has committed funding to the project and promised to build a city parking garage there as well. Thomas Enterprises has invested $200 million in the project so far. Private investment is expected to total about $5 billion, Totah said.

Central Pacific originally established the railyards during the steam locomotive era. The company later became Southern Pacific. The 244-acre site grew to contain at least 243 buildings.

The shops and other buildings began falling into disrepair in the 1930s when the Depression brought reduced rail traffic.

About the same time, diesel locomotives began to gain favor over steam locomotives. The Sacramento Railyards had been set up to produce and repair steam locomotives. Some diesels were worked on there, but retooling the railyards for diesel proved too difficult.

In addition, Southern Pacific moved most of its maintenance work to rural areas like Roseville as Sacramento grew. The railyard shops officially closed in 1999, four years after Union Pacific bought Southern Pacific.

Seven brick shop buildings were all that remained when Thomas Enterprises bought the site for an undisclosed amount in December 2006. All seven will be preserved and rehabbed for adaptive reuse. The massive Boiler Shop and Erecting Shop will be used for the state's Railroad Technology Museum.

Thomas will rehab the other five shops. The 56,000 former Paint Shop will contain a public market selling Central Valley products including produce, cheese, wine, meat and fish — similar to San Francisco's Ferry Building — near an extended Fifth Street. Other former railyard shops will house restaurants, nightclubs and retail stores. In the center, a football field-sized plaza will be built to hold large city events, a farmers' market or small performances.

"These buildings, which will surround the public open space, will form the nucleus of the cultural district," Rich said.

Hazardous materials abatement work is the first step to rehabbing the shops. About 80 percent of the work will be to remove lead-based paint from interior brick. Ten percent will be to remove sheetrock, floor tiles and pipe insulation containing asbestos. The rest involves other contaminants including heavy metals and polychlorinated biphenyl or PCB, he said.

The "significant" cost of abatement won't be known until crews get into the work. Thomas Enterprises tested methods to remove the paint without damaging the hard, fired surface of the brick. Nothing worked, said Rich.

"That put us in a difficult position of how to do it without damaging the brick," he said.

Standards set by the U.S. Secretary of the Interior dictate that the interiors of historic buildings that were originally covered with paint must likewise be covered with paint during rehab. Workers will gently scrape as much lead paint off the walls as possible and the brick will be encapsulated with lead-free paint, he said.

Thomas Enterprises broke ground on the infrastructure phase last winter. Initial grading of Railyards Boulevard and northern portions of Fifth and Sixth streets has been done. Extending Fifth and Sixth streets into the site will help connect the railyards with downtown, said Totah, adding that more infrastructure work will start once the developer gets the state funding it's been awarded.

Building construction is expected to start next year on 5th, 7th and Camille streets. Construction may include housing, mixed-use and office.