As many readers will know, eminent domain refers to the government’s right to seize private property and convert it for public use, even without the owner’s consent and often against their will.
While the government is required to compensate owners for their property, this is an often cumbersome and agonizing process and remains a wholly unacceptable form of mitigation in the eyes of many property owners who fall victim to having their property seized right out from under them, often with little or no recourse. People may be uprooted from homes that have been in their families’ possession for generations, while on the commercial property side of the equation, property owners may see real estate assets they count on for a certain return on investment potentially disappear, often leading to a vastly different balance sheet than what they were anticipating.
While there isn’t any magic crystal ball that allows property management firms to forecast possible future eminent domain actions as they prepare short-, intermediate- and long-term valuation projections for clients, I believe we have the responsibility to stay up to date with current events in the markets we serve. This should always include careful monitoring of the governmental agencies, boards and commissions that are related to eminent domain actions.
Against the seemingly morbid backdrop that many deem eminent domain actions to be, there are some tools, techniques and strategies that firms can deploy on behalf of their clients. Firms that simply refuse to take the position that all is automatically lost when the scourge of eminent domain rears its often ugly head will be regarded as the best in the business. Let me share an example from my own backyard.
The City of Los Angeles recently approved the construction of an extension of its subway and rail system, routing it along well-known Wilshire Boulevard in Beverly Hills, a project that could have a deleterious effect on high-value commercial properties along the route. For the owners that were about to have some of the most valuable real estate in the country and in fact the world seized by an eminent domain action, the situation clearly appeared dire. However, this may be a perfect example of how a property management firm could use its experience and connections to excel through a combination of creative thinking, expertise and unequaled local market insight.
In this scenario, my firm saw fit to develop a professional analysis highly favorable to our client in preparation for negotiations with the government. Such a presentation, we thought, would show the authorities the highest possible projected rental losses that could be incurred by our clients under an eminent domain seizure, thereby driving up the value and, thus, the cost to the government. At the same time, the owners could have tried to resist selling the property under the eminent domain seizure laws and, instead, endeavored to hold it under a long-term lease until the Metro Rail project was completed.
Our idea was that presenting such a solution to the government would save the authorities a lot of money and most definitely a lot of heartaches, not to mention a potential boatload of adverse publicity along the way. Additionally, we recommended to our clients the acquisition of several adjoining properties that were facing the same situation, thereby turning the combined properties into a much more valuable asset six or eight years later, after the Metro Rail project would be completed.
Could this really work? Well, it actually seems to be working. Quite often, governmental authorities and their representatives on the frontlines of eminent domain seizure cases simply do not want to engage in protracted legal battles with well-healed commercial property owners and property management firms that know the local marketplace far better than they do.
Does this represent “thinking outside the box” when it comes to handling eminent domain actions? Of course it does. But, it is the absolute responsibility of property management firms to advocate for their clients with as much vigor, creativity, market knowledge and passion as they can muster. By going the extra mile and not accepting automatic defeat, property management firms may be rewarded down the line, not only with very satisfied clients, but with plenty of new ones in addition.
The bottom line? Eminent domain is a potential land mine for property management firms and their clients. Developing the expertise necessary to handle eminent domain actions effectively, or better yet, forecasting possible eminent domain actions even before they occur, will allow firms to reap the rewards that come with making a real and genuine difference in the lives of their clients.
My advice is to understand and prepare for this because you owe your clients no less.