Developers now facing eminent domain hurdle.

While the recent Supreme Court ruling on eminent domain has been welcome news for many local developers, the U.S. House of Representatives is working hard to come up with measures that would negate the effects of the new law.

On July 1, a 231 to 189 House vote approved the exemption of federal transportation funds from projects that will be developed on lands seized by eminent domain. Further action on Capital Hill is likely to withhold any kind of federal funds, including community development block grants, from going to such projects. If the measure is successful, it could spell trouble for urban developers who often rely on federal money for financing.

According to Martin L. Borosko, a partner with the law firm Becker Meisel, the Supreme Court decision might ultimately end up doing more harm than good.

"Here on the East Coast, there has been a tremendous drive toward urban redevelopment anyway," he said, noting that local governments were long in the habit of using eminent domain. "The real concern [for developers] will be the backlash against the decision, which will have a bigger impact. The decision appears to have galvanized certain political and community activist groups against the use of eminent domain."

Peter J. Herzberg, a partner with the law firm Pitney Hardin LLP, thinks that, in certain cases, developers could turn to state governments for additional funding, but he agrees that the new legislation is likely to become a problem.

"A lot of the redevelopment funds probably come from the federal [government]," he said. "[The legislation] would stop federal funds, but that doesn't mean that state funds couldn't be used for that type of activity.

"Quite frankly, I can't think of anything else to get around it. Obviously, if the local municipality could itself pay for the condemnation [that would be another solution], but that's highly unusual in areas that require redevelopment because if the municipality could do that, they would do that [in the first place.]"

In Borosko's view, the solution lies in good public relations campaigns and community outreach. If a developer shows true concern for the people affected by his project, they will be more likely to go along with the use of eminent domain.

"In my experience, the most successful projects need three things: a developer who has all the talent necessary for the project, a local government that is ready to address all of the issues involved and the third thing is going out to the community from the outset, spending time with the community," Borosko said. "That's not to say that you won't find some opposition, but if you actually reach out to the community and address people's concerns, they will be more likely to [accommodate the development]. If you don't do that, it becomes a long and expensive process and you will be fighting people every step of the way."

In addition, Borosko advises developers to emphasize the positive way in which their projects might benefit the larger neighborhood.

"Developers need to be active on the local level, they need to be promoting the good of these projects," he said. "They need to keep the focus on the good that these projects stand to do for the community."

However, according to Rodney Propp, chairman of the development company, Tahl Propp, even with the new legislation, developers are better off now than they were before the Supreme Court decision.

"Developers have a choice now," he said. "The funding is definitely going to be a challenge, but they are a little bit better off because they don't have legal obstacles to [eminent domain]. It's now going to be up to the developer to use the new legal rights at the expense of the funding or to use federal funding and not take advantage of the legal rights."

The Supreme Court's June ruling allows local governments to seize land from private landowners to make way for private redevelopment projects. Previously, eminent domain has only been used for public projects.