Eminent Domain with Timothy Duggan
Guest: Timothy Duggan
Topics: Stark & Stark, eminent domain, retail, bankruptcy
Transcript:
Chris Ressa 0:00
This is Retail Retold, the story of how that store ended up in your neighborhood. I’m your host, Chris Ressa, and I invite you to join my conversation with some of the retail industry’s biggest influencers. This podcast is brought to you by DLC Management.
Welcome to Retail Retold everyone. Today I am joined by Tim Duggan. Tim is with Stark and Stark got an interesting, unique topic for this show. Today, we’re gonna be talking about eminent domain. But before we do, welcome to show, Tim.
Timothy Duggan 0:37
Great. Thanks, Chris. And it’s a pleasure being here. Excited to be on your podcast.
Ressa 0:42
Thank you. So, Tim, while you tell the audience a little bit more about who you are your work history, what you do. Take it away.
Duggan 0:52
Great, thank you. So I’m an attorney at Stark and Stark, and I’m chair of our Eminent Domain and Real Estate Property Valuation Group. What I specialize is representing property owners, putting a lot of retail property owners in eminent domain and condemnation cases where the government comes along, maybe increases a row built a new infrastructure project that requires them to take part of a retail property, or the entire property if they’re building a school or some sort of governmental project.
And we represent the property owners and trying to protect the rights as the government tries to change your access, you know, in and out of your location, or if they take part of your property what the government has to pay you in damages.
Ressa 1:38
So how long have you been doing specializing in this?
Duggan 1:41
Well, I do actually wear two hats within our firm. I’m also their chair of our bankruptcy and creditors rights group and represent a lot of commercial landlords in chapter 11 cases. So I’ve been doing the bankruptcy for about 30 years, and in the eminent domain and real estate litigation for about 20 years.
Ressa 1:59
Okay. So the reason you’re on today is because we’ve got some new bills that have passed and some things that are happening that might increase the amount of work in your world is that case?
Duggan 2:15
Yes, we are expecting to see a significant increase with the infrastructure spending and the projects that could arise from that in the next couple of years.
Ressa 2:24
So why don’t you start us with the infrastructure spending, and how you think that translates to potential more eminent domain and takings by government?
Duggan 2:41
Sure. So when you look at the infrastructure projects, it’s everything from road projects, which could be a new road or an expansion of the road. In New Jersey, we have a lot of problems with our bridges. And sometimes when they do a bridge replacement project, they also try to bring the roads along in that area, use the state highway up to code.
And that requires them to change, or modify some of the access in and out of a project, you may have new pipelines, you may have new electrical towers, and then you’re going to have certain projects in a municipality or county, a state where they’re going to build a new building, and they need to acquire your property for the retail industry, where we think it’s going to have the biggest impact is when they do a road widening and change the access to a retail site.
It can have significant impacts on the retail side, if it changes how you get in and out of the site or the onsite maneuverability, both in the present use or in your future use. And we’ve seen that in a couple of cases where I’ve recently tried some jury trials for some retail sites that a small taking had a significant impact.
Ressa 3:59
And yeah, I’m familiar, involved in one in New Hampshire actually. Well, I’ll just say involved in one in New Hampshire. That said, so let’s get, I want to get context of magnitude here. Do you think this is probably something that’s going to the activity level will increase across the country?
Duggan 4:32
Yes. When you look at the funding and the amount of funding, we expect it to happen throughout the country, and again, the way politics is, as money comes into a state the pet projects get funded first. Sure. So there’s a lot of political direction of where the money goes. And, you know, I think the key to understand is a small project can have a significant impact on a retail site and the property owner There’s really a need to pay attention.
A good example, I had a seven day jury trial in New Jersey, where the deity was just taken an additional five fee right along your frontage. It doesn’t sound like a lot. But one of our tenants was a car dealership. And by just moving it back five feet, it was just enough where we were not going to be able to park our car inventory out front. Imagine having a site, your tenant, your tenants had been there for 50 years as a high end used car dealership, and now can park their inventory up front.
And when you looked at the project, in the beginning, you might not have understood that just that five foot change of the right away, was going to have a significant impact. And the state of New Jersey offered us 40,000 saying we don’t have damages, we ended up having a jury trial. And they came back with 750,000. Because the jury understood a car dealership that you can park cars out front is a significant drop in value.
And that’s something that the property owner has to understand is even on a project that doesn’t look like a big change, you need to do a thorough analysis of isn’t impacted and how they’re getting in and out of sight is an impact in your present use. And is it going to impact any future uses you may have?
Are you going to lose parking spaces is your building envelope smaller. And this was a bridge project. It wasn’t even a road widening project. They were fixing a bridge maybe a quarter mile down the road. And they wanted to bring up the code all the other access on both sides of the bridge, and they put in a sidewalk. Wow. And it was a minor disaster.
Ressa 6:42
So a couple of things on that one specific example. Did they decide to move through given that they now have to pay 750? Did they decide to move through move the project along still? Are there was that enough dollars to blow up the project?
Duggan 7:01
Well, it’s it really depends on your state, New Jersey, what’s known as a quick take state. So what the government can do if they want to get going on the project is they file a complaint and could immediately file what’s called the declaration of taking, which is a simple document that gets filed with the county and deposit the pre litigation offer in this case 40,000 into court, they now own the project property and could do the project.
What they could do is not deposit the money, not father declaration a taking and go through step one of the case, which is a commissioners hearing. That’s where the court appoints three people, they listen to your case and come up with a number. If that number is too big, they could walk away from the project.
If either side doesn’t like the number, you could request the trial. But the court sets a deadline where the government has to make a decision where they’re committed where they want to walk. And if they walk, they just have to pay the property owners attorney fees and expenses. So the question you have is depends where in the process when the number comes. So for example, in my case, they deposited the money. They had to pay the jury verdict. They
Ressa 8:15
were they were they mind blown on the jury verdict?
Duggan 8:19
Um, you know, no, because there was some pretty experienced lawyers, and when you present it to a jury, there is uncertainty. There is and every once in a while, you’ll present ahead and scratch your case and you wonder what the jurors were thinking. So sometimes they go your way sometimes they don’t you know, I don’t think they really gave way to our traffic engineer who was very good.
He laid out a case and I before you took my property and get my cars in and out afterwards, I can and I think Jerry understood a card or experts did a good job. They really did communicate to the jury that if you can’t park 23 cars out front of a car dealership, you’re gonna get killed the next time you try to lease that property, so…
Ressa 9:09
But in that case, they got a payday but they still can’t park the cars.
Duggan 9:17
Yeah, so that you know, that’s, that’s your damages that’s presented to the jury and you get one bite at the apple. We’ll find out down the road. If if we have to redo the lease what we get if we have to knock down the building and repurpose it. So you know, you know you’re very experienced in real estate. When you own a piece of property and times are changing. You’re always looking at repurposing, redeveloping what you could do with the property.
This is a very good property because it’s on car dealership row. It’s always been a car dealership and you want to keep it as a car dealership. Right It has that recognition. It’s a good location. That’s why we thought it was such a Big problem. Now if you knocked down the building and rebuilt it, yeah, maybe you could do something different. But you know, who wants to go through that cost? If you have a good site? Yeah, for sure.
Ressa 10:09
Wow. So my first question, when do you think this uptick in activity when governments start taking action? Because of the new infrastructure bill starts to make its way in the system?
Duggan 10:30
Yeah, I think it could start in the next, you know, 12 months when the money starts flowing, the early part, because I do think there’s been a lot of projects that are on the drawing board that they just didn’t have the money for.
So if you look at, you know, the various planning, they design these projects pretty far in advance, and then they need the money. So I do think you could start seeing some projects that were on the drawing board start somewhat quickly than picking up steam in two or three years.
Ressa 10:58
And do you have any? Like, how? You don’t hear a lot about it? How? You know, I don’t know if you know, the answer this, how many eminent domain cases like are there in a year?
Duggan 11:14
Now? It’s sort of it’s an interesting question. So for example, in New Jersey, eminent domain is used a lot when they when they redevelop an area. So for example, Jersey City, New Brunswick, a lot of the cities or they’re having redevelopment projects that were somewhat driven by the economy. And then you have county, state and municipal projects that are based upon the budget. So it’s all over the place.
You know, 10 years ago, after when New Jersey was built on all the new schools, yeah, had a lot of eminent domain cases as they were trying to buy property under the New Jersey school construction. There was 30, some odd school districts that run defunded Supreme Court said you have to fix that. So New Jersey threw money at it and built a bunch of new schools, they needed to use the power of eminent domain to take it. So we had a couple year run of those types of cases.
When the economy is good, there was a lot of redevelopment acquisitions, longbranch, cities like that, where developers came in, got them and it’s a palette ease to use the power of eminent domain to take property and give it to them to build. And then you have your court, your garden variety, New Jersey Department of Transportation, widen the road fix in a bridge.
And I have cases now where PSE&G is building a new electricity station, I have another client where New Jersey Transit put one of those big safety cabinets on her driveway down the shore. I mean, it’s a disaster to have this put on your driveway. Granted, it’s the safety for New Jersey Transit. But again, that’s one of New Jersey Transit projects, PSE&G’s project. So when you look at eminent domain, it’s all over the place, depending on the types of projects.
Ressa 13:07
Do you think the pickup in activities, what percentage would you give it that it happens across the country? Is it 10% more projects? 20%.
Duggan 13:18
I would think across the country, you could be an easy 30 40% more projects, wow, there’s a lot of money, a lot of money. And I think a lot of areas of the country were hit with budgets problems, and now they’re gonna get a bunch of money. It’s how they spend it. You know, some of these can be small projects. Sure.
And then you’ve got a big project. So in a state like New Jersey, if you have a whole bunch of bridge projects, and you bring the the properties up to code and change the access until you have small, taking small eminent domain cases, but you’re modifying access in how difficult it not to get a pay day.
Ressa 13:54
But how difficult is it for the property owner to stop the project from happening?
Duggan 14:12
Really, really hard. If it’s a legitimate government project, if it’s a redevelopment project, and it’s an overreach, where there’s really no public benefit? Yes, you can challenge those and those are the redevelopment projects. When the government is doing a project for the public. As long as their attorney doesn’t trip up. You really can’t beat them, for example, they have to negotiate in good faith. Sometimes they don’t do that. The court will dismiss the case. Make them pay your legal fees, but it’s a doer.
They negotiate and they do it again. So, you know, in a lot of the public projects, we don’t always challenge the taking. What we do is we challenge In just the payday how much they have to pay you, there you gone. The other thing that’s really important is, what they do in New Jersey is the D O T tries to handle the access issue first, and then do the acquisition. And the second part.
And the reason is, if they just modify your access, in some circumstances, it’s deemed the exercise to the police power, and you don’t get paid damages or compensation. And as you know, from a retail site, you can destroy a site by changing the access, you really can. That’s where the property owners really need to pay attention. Get a good lawyer and a traffic engineer to really decide if that’s going to be a problem.
And then meet with the D O T engineers and see if you could come up with a better plan that won’t kill your site. You know, if you have a drive thru, if you have Park and you’re on site, how you gonna get your delivery, those things could be change. And you may have a site that has 10 curb cuts, or no no curb at all trucks come in and out.
Now, DOD says we’re gonna give you one driveway, and you’re like, where’s it gonna be? That’s not gonna work. My Trucks can’t do the turns and stuff, you better get involved early and oftentimes bring a traffic engineer involved online, to let them know if their plan is going to work or not.
Ressa 16:21
Got it? And so, my experience has been there, there’s when it comes to the value that they ascribe. It is not how the private market ascribes value to the asset. Is that your experience?
Duggan 16:46
Yeah, when one of the problems is it’s battle the appraisers and the appraisers generally have to go off comparable sales, or the income approach with leases. Usually, the when you have a big difference, I just settled the case where the governor was at 1,000,003, we were at 7.5. Okay, the difference is what’s the highest and best use of a property.
So if I have, you know, 100 acres, and I look out there, and I don’t really understand real estate, I may say you could do A, B or C, I get someone like you or good planner, or a good real estate person say now, if I can get a variance, you could do this project. Or if we could get the zoning change, the town would support it. And we could do this.
So when you have the big difference, it usually is a difference in the highest and best use of the property. And whether or not there’s a reasonable probability of getting a variance or a zoning change.
Ressa 17:53
Yeah, I would. The other thing I would say is, I’ve seen that the differences also the impact it makes, right, so you settled it from the DAT and the 750,001 case that assume damages, but as you mentioned, right, they might take like, because if they’re just it’s, it’s very hard, like if they’re just taking, like you mentioned a small project, sometimes they just need to take, like literally like a 25 by 25 foot, like piece of land, right? It’s like, really small piece of land or even smaller, to make it work well, on a taxable basis.
Maybe that value of that dirt is on its own is $50,000. But because now you’ve changed the entire complexion of the property, the property value has potentially changed. And it’s unknown what that is. So there’s this huge Delta in if you’re just looking at the facts. Yeah, but now you’ve I’ve just lost, not potential revenue of the 750,000 and car sold. But the value of the actual underlying dirt has fun has fundamentally changed.
Duggan 19:21
Yeah, and we call that severance damages. Yeah. And they’re recoverable. But you have to prove them. And what makes it difficult is you need to have an expert that could point to data to support their opinion. Sure. And that’s where you really like for example, the case I just settled a couple of weeks ago. For the property owner to show there’s a reasonable probability of getting an ordinance change to allow us to do mixed use. I had four experts.
I had a traffic engineer, a sewer slash environmental engineer, a planner and an appraiser. Because like you said, if I’m going to say a little a little taking has a big impact. And my property drops by 30%. I have to prove that. So in my case, they took part of 258 acres, which was a closed golf course for open space, the government appraised it as open space. Yes, they did that. We praise it as mixed use. But I had to show that there was a reasonable probability and I had to get all my ducks in a row.
And sometimes it’s hard to tell the client, yes, they’re taking your property, you didn’t ask them to do it. But you have to spend the money on these experts to show we also rely upon our very experienced property owners who have visions for properties that other people don’t say. They say, well down the road, I think I could do this project. Now I can. What, what makes you think that’s going to work?
You’re like, wow, that’s a good idea. And then you explain why you think that little takings going to be an impact. And when we go through that all the time with underground utilities, it’s, well, it’s just an underground pipe, you could use the surface? The answer’s no, you can’t use the service, you can’t put a building over it.
Now you just killed your your building envelope. There’s other things you sometimes you can’t pave and cross it, or you can’t cross it at an angle, all these different restrictions can hurt you down the road.
Ressa 21:21
Sure. So, Tim, this has been fascinating. So one, we’re going to see an uptick in this. It’s, unless the bill changes, but it seems the bill is here. And states are going to get funded for projects that have been on the ice for a while. And that’s gonna lead to an uptick in eminent domain across the country. Any tips for property owners out there?
Duggan 22:00
Yeah, I think that the number one tip is to try to engage early, like I said, in New Jersey, they do a two step process, you have to get involved on that access, and try to negotiate right away because there’s certain time periods that you have to appeal. So if they make a decision and say, well, I’m gonna change your access, and it doesn’t impact you, and you think it does, you may only have a 30 day time period to appeal that.
So it’s very important not to ignore notices, to try to stay on top of the planning in your area, especially if it’s a big site, you know, if it’s a big retail site, what’s the project, and engage early? I think it is the number one thing for the property owners, especially on the retail side.
Ressa 22:52
Got it. Very helpful. Well, Tim, anything we didn’t talk about today that you think as it relates to eminent domain, you have a good story, you give us some, a lot of context, a lot information that we should talk about that we have in as it relates to eminent domain and takings in the infrastructure bill.
Duggan 23:17
Yeah, I think the only thing to remember as the eminent domain is that, you know, that you’re not restricting evaluation to the present use. It’s the highest and best use of the process property that’s oftentimes different than the existing use, and you only get one bite of the apple. So if an eminent domain is coming in, you need to get good professionals together, and look at all the future potential uses of this property. And try to understand how this takings is going to impact those uses.
That’s the key to make sure that you get as close to home as possible, you’re supposed to do, may hold the government, I’ve yet to have that case, never had the case for the property owner walked away whole because in New Jersey, you pay your own legal fees, that alone sets you back and you get a good engineer, you get an A good appraiser to put your case together.
So I think the key is, is when there’s a taking, you have to look at the property on all the potential future uses and make sure that the building envelope is smaller, and it’s going to hurt you down the road, get those damages now
Ressa 24:26
I have a question. Do you, how hard would it be for a government to use eminent domain on a functional working property, and not just the up sliver, but let’s use a shopping center, taking the entire center, and it was vibrant and things were happening, but they had a project. Have we seen anything like that? It’s been crazy. Is that crazy?
Duggan 25:06
Yes. So if they were to take it to build a school, or a municipal building, you’re not going to be able to stop that, they can do it. We’ve seen situations where you do have fully occupied property. And you have businesses that have been there a long time and landlords that own the property have leased them out. But the township thinks there’s a better use.
Okay, under our redevelopment law, that’s not enough to say, well, we’d like something different, we’re going to take that from you, and give it to the southern developer, because we think that’s a better use, what they have to show is the property is in need of redevelopment. You know, it’s underutilized, it’s vacant. But what ends up happening is the government hires their professionals.
And they’re gonna tell you that it meets redevelopment criteria, because that’s what they’re paid to do, what’s underutilized, it needs to be repaired, they’ll come up with all their reasons, try to designate it, then abandoned it, development, and then give it to another developer. And we’ve seen that and there’s been some successes in challenging those projects.
But a lot of times, they’re happening in cities, and they’re sort of maybe half full, or three quarters full or things like that. But that’s where, if you know if that’s coming in, we have had a fair amount of them that domain abuse throughout the country. And you really need to get a good lawyer in because the way the cases work is they file a complaint. And within six or seven weeks, you’re having a hearing.
And that’s game day, right, to take you’ll have two or three years to prepare your case and and present it to a jury on the right to take. It happens pretty quickly. So you got to get your ducks in an order pretty quickly, to come in and challenge that taking if it’s an overreach, like the example you just gave us.
Ressa 27:02
Wow. Well, Tim, really insightful, really interesting information. Appreciate you coming on today and sharing your knowledge with us.
Duggan 27:15
Well, thanks very much. I enjoyed this, Chris. It was a lot of fun. And I hope I was able to help people understand a little bit of a process, and it’s important to stay on top of it because people invest money, do a great job with their properties. You don’t ask the government to come along and they don’t really care how it impacts you. And then they make you fight over the money slide. It’s not a level playing field.
Ressa 27:40
For sure, it is what it is. Well, Tim, this has been great. Thank you so much.
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