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Comments on "Private Development as Public Use: New Michigan Case Raises Questions About Power to Condemn Property for Economic Development".

I commend David Black on his column "Private Development as Public Use: New Michigan Case Raises Questions About Power to Condemn Property for Economic Development" (Fall 2004), which characterizes pivotal former and pending condemnation cases in light of the governmental powers afforded to municipalities in promoting economic redevelopment. The purpose of this letter is to suggest a new angle toward achieving proactive economic redevelopment through the marketplace via police power rather than the powers of eminent domain alone.

Rezonings are often associated with down zoning and the taking of property for public purposes. Inverse condemnation is, in effect, the taking of private property due to the institution of public policy, e.g., the 1,000-foot setback instituted along the Chesapeake Bay, Maryland shoreline. Condemnation for economic redevelopment purposes carries with it the implication that the envisioned project has a higher utility for the underlying land. Higher utility of the land indicates a change in the highest and best use. As popularly known in the valuation profession, when the land value as vacant exceeds the value of land as improved, the highest best use is considered to be its land value (less costs associated with demolition).

At the second annual Washington Appraisal Summit, the greatest complaint amongst panelists on condemnation process was that concluded fair market values are not sufficient just compensation to satisfy and stave off individual property owners from seeking to contest offers in court. This observation by the panelists is precisely the reason a distinction in procedure must be made between the means behind land assemblage for public projects versus private redevelopment. Where possible, the means should justify the ends, not the ends justify the means. The opportunity lies in the prospect that the overall returns to a new economic development plan are likely to be greater than the returns to the land alone.

An appraisal of fair market value is tied to the condemnation authority's own definition of the same. This definition sets the scope of the appraisal and specifies the evidentiary market support admissible in court. Often, the announcement and/or the funding date of a public project is the pivotal point that sets the before and after values required to substantiate damages. The invocation of the jurisdictional exception rule is grounded in case law not the premise behind an attorney's case. Appraisals must follow the laws of a jurisdiction in providing value estimates.

The effectiveness of exercising the power of eminent domain relies primarily on the government, whereas the success of a jurisdiction exercising police power relies on the market.

Exercising the power of eminent domain for economic redevelopment purposes, though necessary in some instances, is being chosen more often than a jurisdiction's more proactive authority of police power. On its surface, the process of condemnation may appear expedient as it is less complicated to implement and set in motion. However, the latter stages of condemnation tend to place a drag on its overall mission. The timing expended to achieve its intended goals may prove invaluable in possibly missing the very economic feasibility trend condemnation was trying to promote. Exercising police power through the upzoning of land to a higher intensity or utility may be more complicated in approach and will require more expertise and sophisticated methodologies to support, but it relies on the marketplace to effectuate.

Again, the implication of condemnation for economic redevelopment purposes is that the envisioned project has a higher utility, and thus per valuation theory, a higher value than the currently improved use. As such, it can be said that the economic life of current improvements is less than the physical life of the improvements. It follows further that the existing zoning and land use policies contain a degree of functional obsolescence as well. Older zoning categories may be too restrictive and inappropriate for modern real estate demands.

Considerable time and effort is expended in land assemblage efforts, whether they are initiated by private parties or public entities. The underlying premise behind these efforts is that these parcels assembled are greater than the sum of the parts (i.e., summation of acquisition prices).

For the sake of economic development, jurisdictions appear more willing to condone the less complicated path of condemnation proceedings than to exercise the mix of its given governmental powers (namely police power, eminent domain, and taxation) to orchestrate the metamorphosis of urban economic systems from declining to more marketable uses.

It would appear more logical to identify the area seen to be underutilizing its land and to upzone it to increase its utility. Caution is directed to valuation professionals to consider all the expenses and timing associated with the favorable zoning in order to estimate a property's upside potential. In effect, individuals in the marketplace may start to put the land assemblage efforts in motion rather than court proceedings.

I agree with the author that the Hathcock case may have less impact than expected on jurisdictions' efforts to promote economic redevelopment. Even so, lessons should be learned and economic development workbooks should be rewritten to achieve the desired results more effectively.

I also agree that the 1963 perspective promulgated in the Hathcock case is a poor reference in time to review the "public use" interpretation. Downtown urban streetscapes, as impacted by interim functional obsolescence to the land, improvements, and public infrastructure, have generally continued to decline over the past 40 plus years since. Meanwhile, downtown central business districts across the nation have extensively developed most of their available land, and the land is divided into parcels and lots based upon yesteryear's economic systems. What little vacant land left is not sufficient to encourage the mix of land uses to jumpstart downtown redevelopment efforts. Furthermore, the public infrastructure supporting these areas is often restrictive and requires extensive retrofit.

The 1963 perspective in the Hathcock case is almost as dated and contrived as most jurisdictional condemnation definitions, which may limit the scope of an appraiser's valuation. Current definitions appear to promote a theoretical perspective and approach rather than a practical one as supported by the marketplace. I agree with Mr. Black that the evolution of aging cityscapes requires an evolution in the law to further a "living constitution."

In broad economic redevelopment plans covering large areas, often there are planned public projects (new infrastructure) interspersed within and throughout potential private developments. Obviously, these infrastructure projects are "public use" projects en masse. The acquisition of properties in the path of planned public infrastructure should likely still rely on condemnation efforts as the success of an economic development plan may be dependent upon its timely construction.

The term "public purpose" verses "public use," though thought provoking is too broad a term to suggest the specific framework of implementation or means. However, it does suggest a bifurcation of approaches to economic redevelopment, where "public use" remains in its classic interpretation for public projects and "public purpose" emboldens jurisdictions to exercise more police power to catalyze the marketplace.

Blight should not be the central issue in the condemnation for economic redevelopment alone. The larger issue is the increasing intensity of demand for the land that should rule, in effect, the marketplace, where individual owners are not left out.

The exercise of police power is more complicated, speculative, and risky to implement. At least speculation has a degree of hope associated with it. Conversely, the process of condemnation implies the termination of existing uses, some of which are still economically feasible in their present situation. A change in zoning may in fact sift out unfeasible uses and empower other feasible uses to reach a maximally productive status.

I believe condemnation is not strictly coterminous with the scope of the government's police power to pass laws. Instead, condemnation should team with proactive police power so that capitalism can facilitate the public objective of economic redevelopment.

The primary force behind redevelopment should be police power. The exercise of police power should set land re-use and re-zoning policy to transform functionally obsolete areas and recast a cityscape in the form of emerging economic orders/systems.

Joseph F. Consoli, MAI

Baltimore, MD
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Title Annotation:letters to the editor
Author:Consoli, Joseph F.
Publication:Appraisal Journal
Article Type:Letter to the Editor
Date:Jan 1, 2005
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