NEW YORK — Few subjects raise the ire of urban planning, development, and legal experts as much as the question of eminent domain.
As more retailers seek emerging markets, and retail developers face a backlash against suburban sprawl and a scarcity of large plots of land to build on, the highly charged issues of eminent domain are likely to loom in most large-scale urban or economic development deals. There are 47 states with eminent domain legislation pending, and 12 states have passed some sort of regulations on the use of the power.
“This is an explosive topic, and I don’t think any of us have been giving it enough attention,” said John McIlwain, a senior fellow at the Urban Land Institute, a Washington, D.C. -based think tank. “The developers aren’t paying enough attention, ULI isn’t paying enough attention, and the International Council of Shopping Centers isn’t paying enough attention. Meanwhile, the courts and city governments have been very active in promoting legislative changes. We need to focus more on it.”
At the most basic level, eminent domain is the power of a local, state or federal government to purchase, for a fair price, property or land from private owners in order to accommodate a public use. Typically, the properties purchased are distressed or underutilized. The more economically blighted or distressed a property is, the more likely it is that the government will and can legally condemn it under the auspices of eminent domain. The concept seems simple enough — use governmental power to usher in economic change.
But even these basic terms generate debate and are open to hundreds of interpretations and disagreements. What is “just compensation”? Who determines it? Is the government “purchasing” property from unwilling sellers, or is it “seizing” it for whatever price it determines? And what is a “public” use?
A century ago, a railroad company buying a tract of homes or underdeveloped land from a private owner for a new rail line clearly offered a public service. Municipalities can also argue that developments such as parks or a local government building constitute public space. Finally, where are the lines drawn? In an oft-used line of questioning from critics of eminent domain, what stops governments from condemning every Motel 6 and building a Ritz-Carlton instead, in the name of economic development?
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New public space is often created in the context of mixed-use retail, residential and commercial development. In modern communities, a shopping center often provides the only public gathering space for residents — but that, of course, doesn’t necessarily mean that retail developers will be able to exercise eminent domain.
“In certain ways, the shopping center developer and the retailer have one of the toughest cases to make under the new politics of eminent domain,” said Julia Vitullo-Martin, senior fellow at The Manhattan Institute, a conservative think tank in New York. “Even before this most recent controversy with eminent domain, many retailers were finding themselves in substantial political trouble with wealthy American cities. Big box retailers like Wal-Mart, Ikea and Home Depot found themselves simply unwanted or opposed by community activists that said that their businesses were not in the public interest, much less the real estate that they occupied. It’s an explosive situation.”
Eminent domain has moved to the forefront because of a landmark decision in the case of Susette Kelo v. the City of New London, Conn. The Supreme Court of Connecticut ruled in favor of the city of New London, stating that the municipality had the right to exercise eminent domain to acquire property from unwilling owners in order to assemble a parcel of land for a development plan that was “projected to create in excess of 1,000 jobs, to increase tax and other revenues, and to revitalize an economically distressed city, including its downtown and waterfront areas.” In this case, the Supreme Court of Connecticut said the project was in the public interest.
“The Kelo case really brought eminent domain into the mainstream,” said Lisa Bova-Hiatt, deputy chief in charge of condemnation for the New York City Law Department. “There was a tremendous backlash in Kelo’s wake, and a lot of disdain in the idea that a property could be transferred from one private owner to another. Since Kelo, people think they have no protection from arbitrary seizures — but really, the ruling didn’t expand eminent domain, it just reaffirmed that economic development is an appropriate use under the Fifth Amendment.”
There are good examples of the positive uses of eminent domain for cities and for the retail community, said Bova-Hiatt, who cited the redevelopment of the Times Square district in Manhattan.
“Forty-second Street is the best example in New York of a blighted area that was, with the help of eminent domain, revitalized into a tourist-friendly area now packed with commercial interests,” she said. “Developers were able to do that all with the power of condemnation.”
Other examples supporting both the positive and negative impacts of eminent domain abound.
In one instance last year, city officials in Alhambra, Calif., declared 60 businesses, including the Museum of Contemporary Arab Art, to be “blighted” in order to pave way for upscale condominiums and stores to be built. Los Angeles City Council members approved a redevelopment project in October that will take 573 acres around L.A. Memorial Coliseum. The goal is to build more housing, retail locations and entertainment in hope of attracting a National Football League team.
However, last year in Daytona Beach, Fla., the city seized three boardwalk properties to clear space for a $120 million retail complex. But it used an outdated 25-year-old study that declared the area blighted — even though new development had since taken place.
“If a developer can’t get a property, the retailer can’t get their store,” said McIlwain of the Urban Land Institute. “We all need to be talking together about what we should do about this.”