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Project Blight — Project Enhancement
By
M. Robert Goldstein and Michael J. Goldstein
It is not an unusual occurrence for controversy to surround
the proposal to build a public improvement. It is usual that
when there is controversy, it causes a delay in the project's
implementation or even its shelving. The current controversy
over Westway and the Forty-Second Street redevelopment is
somewhat reminiscent of the proposal to build the Lower Manhattan
Expressway which, after perhaps twenty years of discussion
and litigation, was killed at the last minute by Mayor Lindsay,
just when it appeared the land necessary to build it was to
be acquired. Westway has been delayed twelve or more years
since it was proposed and Forty-Second Street is probably
three or more years old since U.D.C. became involved in attempting
to develop a plan.
Effect of Publicity
During the proposal and discussion process, especially in
controversial projects, substantial publicity is given and
the public becomes aware of that project. It is the effects
of that publicity which has caused problems in the condemnation
proceeding with respect to its effect on value.
That its effect is misunderstood is reflected in several
telephone calls we received from clients when a lecturer in
a real estate course reportedly advised his class that in
the Forty-Second Street project the properties there would
be valued t the level of value they reached when the project
had first been announced a number of years ago. Needless to
say, if that were indeed the fact, which it is not, they would
be seriously affected, in view of the steep climb in real
estate values in general in Manhattan since that announcement,
and particularly in midtown Manhattan.
The announcement of a project, depending on its nature, usually
has two effects. The first is to the properties within the
project area which are proposed to be condemned. The other
is to the abutting area.
Historically and predictably, properties proposed to be condemned
are negatively affected. It starts with tenants concerned
that they may not have sufficient time to relocate and seek
to move right away. Or, if they choose to stay, they cease
making repairs and improvements to their premises, believing
they will not be thee long enough to enjoy them. Property
owners do the same ting. If a boiler or an elevator needs
replacement, instead of making the substantial investment
it would require, more expedient measures are taken in the
face of a pending condemnation. When a vacancy occurs, it
is extremely difficult to get new tenants, certainly those
who would put substantial fixtures or improvements into their
new premises.
Assuming, there was an equal bargaining position between
landlord and tenant before, the pendulum rapidly swings against
the landlord who must make all kinds of concessions to keep
his property from becoming or staying vacant. Instead of seeking
rent increases he is happy to keep his rent roll intact. Mortgaging
of the property becomes extremely difficult. The ability to
sell becomes impaired, except to speculators. No one wishes
to buy into litigation. If the project is in the proposal
state long enough, the landlords' problems multiply.
It is not unusual to see decreasing rent rolls, vacancies
and signs of deterioration, despite an otherwise thriving
real estate market. The problem had become so common, with
the proliferation of urban renewal in the 1960's and
1970's, that it acquired a name "condemnation blight."
Case in Buffalo
As property, as a general rule, is to be valued in the condition
it is in at the date it is condemned, a rule of law evolved
in which the property owner was not to suffer the effect of
the value depressing effects of a proposed condemnation proceeding.
It was summed up in City of Buffalo v. J.W. Clement Co.,
28 N.Y. 2d 241, 321 N.Y.S. 2d 345, where in refusing to declare
a "de facto" taking as of an earlier date, because
of the value depressing effects of the long planning process,
the court stated: "Indeed, the aggrieved property owner
has a remedy where it would suffer severely diminished compensation
because of acts by the condemning authority decreasing the
value of the property (Niagara Frontier Bldg. Corp. v.
State of New York, 33 AD 2d 368, decided herewith). In
such cases where true condemnation blight is present, the
claimant may introduce evidence of value prior to the onslaught
of the ‘affirmative value-depressing acts' City
of Buffalo v. George Irish Paper Co., 31 AD 2d 470, 476,
299 N.Y.S. 2d 8, 14) of the authority and compensation shall
be based on the value of the property as it would have been
at the time of de jure taking, but for the debilitating
threat of condemnation (see, also, City of Detroit v. Cassese,
376 Mich. 311, 317 — 318, 136 NW 2d 896; City of Cleveland
v. Carcione, 118 Ohio App. 525, 190 NE 252; 4 Nichols,
Eminent Domain (3 ed.), Sec. 12,3151; Owen, Recover for Enhancement
and Blight in California, 20 Hastings L.S. (Univ. of Cal.)
622, 643 — 649 (January 1969). This in turn, requires
only that there be present some proof of affirmative acts
causing a decrease in the value and difficulty in arriving
at a value using traditional methods (City of Buffalo v.
George Irish Paper Co., 31 AD 2d 470, 299 N.Y.S. 2d 8,
aff'd. 20 N.Y. 2d 6869, 309, N.Y.S. 2d 606)."
Other Court Rulings
Similarly, other courts in the State applied the same principle,
that if value depreciated because of planned condemnation,
the value as it would have been but for it was to be awarded
(City of Rochester v. Lanni, 33 AD 2d 888, 307 N.Y.S.
2d 596 (4th Dept., 1969); Mobil Oil Corp. v.
State of New York, 55 A.D 2d 821, 390 NYS 2d 297 94th
Dept., 1976); City of Buffalo v. Manguso, 42 AD 2d
673, 344 NYS 2d 248 (4th Dept., 1973); Kessler
v. State of New York, 21 AD 2d 568, 251 NYS 2d 487 (3d
Dept., 1964); 76 Crown Street Corporation v. City of New
York, 35 AD 2d 1005, 317 NYS 2d 978 (2d Dept., 1970);
In re 572 Warren Street, 58 Misc. 2d 1073, 298 NYS
2d 429 (sup. Ct., Kings Co.). This includes disregarding lowered
or stagnant rents in an otherwise upward market, deteriorated
property, lower sales prices, etc.
While the value of property within the footprint of the project
undoubtedly suffers, the same is not necessarily true of the
property surrounding the project. While some projects may
depress surrounding property values (an egregious example
would be a garbage dump) many projects increase them. This
is more than an academic observation in a condemnation setting.
To begin with, the same principle applies. Value, in a condemnation
sense, may not be affected by being either increased or decreased
solely by reason of the planned project (United States
v. Miller, 317 US 369). Thus, land may not be considered
more valuable as available for the use for which the project
is designed, if not otherwise available for that use. Nor
may the enhanced value of surrounding land, caused by the
anticipation of the coming project, as reflected by sales
and leases, be used to prove the value of the land condemned.
That, however, is a subject easier stated than dealt with
on a practical level, particularly in a sharply rising real
estate market, such as we have been enjoying in New York the
last number of years. The most appropriate sales and leases
are those closest to the site, but those are the most likely
to be affected by any value enhancement of the project, particularly
if the planning process has been at all lengthy. (Sometimes
it has been so lengthy and so controversial that the market
discounts it as a possibility and it ceases to affect the
value of adjacent property). To eliminate them may be to eliminate
the only practical proof of value. Certainly, if lands adjacent
have been affected, those within the project's footprint,
for the reasons stated, will almost certainly be. Then in
a sharply rising market, the value increases may really be
by reason of that fact, rather than by reason of project enhancement.
Most often, it will be a mixture of both.
View Not Unanimous
This, incidentally, is not a unanimous view in all jurisdictions.
New York is one of those which do not permit value enhancement
by reason of the proposed project (In re Addition to Lincoln
Square Urban Renewal Project, 22 Misc. 2d 619, 198 NYS
2d 248; Fitzgerald v. State of New York, 9 AD 2d 486,
194 NYS 2d 569). Some states permit it in whole or part (City
of Valdez v. 18.99 Acres (Alaska), 686 P. 2d 682; DOT
of State of Florida v. Nolven, 455 SO. 2d 301; Baylin
v. States Roads Comm'n (Md.), 475 A. 2d 1155.
The New York rule is set forth in United States v. Miller
(317 U.S. at pages 376377): "If a distinct tract is condemned,
in whole or in part, other lands in the neighborhood may increase
in market value due to the proximity of the public improvement
erected on the land taken. Should the government, at a later
date, determine to take those lands, it must pay their market
value as enhanced by the factor of proximity. If, however,
the public project, from the beginning, included the taking
of certain tracts but only one of them is taken in the first
instance, the owner of the other tracts should not be allowed
an increased value for his lands which are ultimately to be
taken any more than the owners of the tract first condemned
is entitled to be allowed an increased market value because
adjacent lands not immediately taken, increased in value due
to the projected improvement.
"The question then is whether the respondents'
lands were probably within the scope of the project from that
time the government was committed to it. If they were not,
but were merely adjacent lands, the subsequent enlargement
of the project to include them ought not deprive the respondents
of the value added in the meantime by the proximity of the
improvement. If, on the other hand, they were, the government
ought not to pay any increase in value arising from the known
fact that the lands probably would be condemned. The owners
ought not to gain by speculating on probably increase in value
due to the government's activities."
Question Raised
The language itself raises questions. The more obvious ones
are when is a condemnor "committed" to a project,
and does the rule continue to apply even though many years
have passed since there was a "commitment" to the
project? Does just the passage of substantial time bespeak
a noncommitment? Does commitment connote approval of a finished
plan rather than the preliminary steps which precede it? There
is a difference of opinion in varying jurisdictions. We suspect
as an aftermath of Westway and Forty-Second Street redevelopment,
we are going to get more answers to these questions in New
York.
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