Memo - Block 64 Redevelpment Project
I Economic Development I
MEMORANDUM
TO: Honorable Mayor and City Council
FROM: -/1< Jim Kerrigan, Director of Planning.& Economic Development
DATE: February 23,2005
SUBJECT: Block 64 Redevelopment Project - Eminent Domain
Overview
GPS Financial Group has executed a preliminary development agreement to undertake
a redevelopment project for the block bounded by Fifth Avenue, Sixth Avenue,
Mainstreet, and First Street North. Discussions to date have outlined a mixed-use
project with approximately 10,000 square feet of lower level retail and approximately
250 for-sale residential units.
The subject block has 13 tax parcels with six different owners. GPS has control of the
six properties in this block. GPS has still been unable to secure purchase agreements
on the other seven parcels owned by 5th Avenue Partnership. (This property contains
Park Plaza and its adjacent surface parking areas.) In January, City staff met with the
Council in a work session to discuss the City's use of eminent domain to secure this
property. Staff has now scheduled a further discussion of the matter for a March 1 work
session (6 p.m.,Raspberry Room). The purpose of this discussion is to provide an
overview of the eminent domain process, timing issues, and legal concerns. Don
Wilson, Bob Deike, and Sid Inman will be prese'nt at'the meeting.
Attachments
. Memo from Dan Wilson, Wilson Development Services
Eminent domain article, Minnesota Cities, November/December 2004
· Site map
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IL)ON
DEVELOPMENT SERVICES
OFFICE 952.448.4630
800.448.4630
FAx 952.448.4676
WILSONDEV510@AOL.COM
510 CHESTNUT STREET,
SUITE 200
CHASKA, MINNESOTA 55318
RELOCATION & CONDEMNATION
ISSUES AND RISKS
BLOCK 64 REDEVELOPMENT, HOPKINS, MN
The City has been contacted to determine its interest in participating in the
redevelopment of this block.
Two issues above and beyond the financial feasibility surfaced that may require the City
Council's attention and discussion.
1. Condemnation
The developer, GPS Financial Group, has acquired or is in the process of
negotiating purchase of the property on the block between 5th and 6th Avenues, north
of Mainstreet (Block 64 )-except for the property owned 'by 5th Avenue Partnership
(Park Plaza Hotel).
The developer has stated that if a negotiated purchase cannot be completed for the
Park Plaza property they would ask the City to use its eminent domain powers
(condemnation). Condemnation settles or establishes two major points. First, is
there a "public purpose" for the acquisition. A public purpose would be established
,through the adoption of a redevelopment plan, which would set forth the public
purpose due to substandard property issues, etc.
Second is the determination of property value either by the court appointed
commissioners or a district court jury upon appeal. More and more sophisticated
property owners are turning to the condemnation process to arrive at a settlement
price as a matter of course.
The request for property acquisition by condemnation is not unusual and is not
necessarily adversarial. The condemnation action does pro\lide the seller with two
years, instead of one, in which to reinvest the proceeds before paying capital gains
tax. The "threat" of condemnation is actually sufficient to provide this tax break. I
believe that this is part of the terms being negotiated with the 5th Ave. Partnership.
The condemnation process is a legitimate way to arrive at a selling price. There is
the additional cost such as commissioner's expense, attorneys, appraisers and other
expert witness. The expenses could approach $15,000 to $20,000 and are typically
passed on to the developer and/or paid by the TI F.
Page 1 of 3
The "risk" of condemnation can be:
1. Public Opinion
Condemnation is typically not seen in a popular light by the general public.
The City of Richfield's "Best Buy" project has recently raised public
awareness of condemnation in a negative context. The City of Hopkins has
used condemnation in a very limited way. Actually, it has been about thirty
years since condemnation has been ysed for redevelopment.
2. Public, Purpose Challenge
The seller has an opportunity to object to the public purpose at the first court
hearing. If the judge were to agree, the condemnation action would halt,
subject to appeal by the city. The reality is, the condemnation laws in
Minnesota are very strong in favor of the condemning authority. Typically,
successful appeals to the public purpose occur when the property owner
already had a private redevelopment plan of their own in motion and then it
isn't certain.
3. Price Increase
The quick take condemnation action delivers title and possession of the
property in 90 days. The final price may take several more months, to over a
year for a final price settlement.
2. Relocation
The developer is seeking TIF assistance for the project. Receipt of TIF assistance
triggers the Minnesota Uniform Relocation Act (MURA) (Section 117.12) which
means that anyone displaced by the property acquisition will be entitled to relocation
benefits and assistance.
Basic relocation assistance includes:
1. Assurance of at least one comparable unit being available before seeking their
displacement.
2. Ninety day notice to vacate.
3. Rental assistance to compensate for increased cost of housing for 42 months.
4. Move of personal property.
The developer had a significant number in his initial development cost budget for
relocation, so he is aware of the relocation responsibilities.
Relocation is technically a city or liRA responsibility. The city can move the costs, or
financial responsibility, to the developer through the development agreement (this
was done with The Oaks of Mainstreet), but the city remains the responsible party if
disputes arise.
Page 2 of 3
The displacement of a large number of possibly low-income persons is certain to
draw the attention of the public.
The existing residents can be dealt with directly through a relocation plan
implementing all of the rights and benefits due them under the MURA. Relocation is
one of those time-tested processes establishing a fair and reasonable way to
minimize per.sonal hardships brought about by their displacement.
There are advocacy groups in the metro area that may choose to become involved.
They typically are concerned with 1) The loss of affordable housing, and 2)
Treatment of displacees. They may step forward during the public hearing process
the city will go through to adopt the redevelopment plan.
Prepared by Danie/ Wilson
Wilson Development SeIVices
December 28, 2004
Page 3 of 3
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SESSION 2005: A PREVIEW AND FOCUS ON ISSUES
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The tensio11 between the interests if local governmmts and the rights of private lat'ldowners cofttinues to
play out across the nation. Private property rights advocates have launched an aggressive ejfOI't to curtail
local governments' ability to use eminent domain for economic development and redevelopmmt projects.
he U.S. Supreme Court recendy
agreed to review a Connecticut
case (Kelo v. City of New London)
addressing the issue of whether it
is appropriate to use the govern-
ment's power of eminent domain
to take property for economic
development purposes. The
Supreme Court's review of this case
threatens to reverse long-standing legal
precedent that affords great deference to
municipalities in carrying out' commu-
nity and economic development plans.
In Minnesota, the Alliance for
Reasonable Municipal Regulation
(ARMR) proposed legislation during
the 2004 legislative session that would
have made sweeping changes to Minne-
sota's land acquisition process. The pro-
posal would create uncertainty in the
law that would generate expensive
litigation, increase the cost of public
projects, and impair critical development
projects. (ARMR is a coalition of
business interests that includes the Min-
nesota Automobile Dealers Association,
Builders Association of Minnesota,
Builders Association of the Twin Cities,
Minnesota Realtors Association, Min-
nesota Retailers Association, Minnesota
Petroleum Marketers Association,
Marathon Ashland Oil, Super America,
Alliance of Automotive Service Provid-
ers of Minnesota, Outdoor Advertising
Association of Minnesota, and the
Minnesota Grocers Association. The
League strongly opposes this legislation.
Constitutional and statutory requirements
Under the framework established by
federal and state constitutions, the gov-
ernment may take private property for
a public use if the owner receives just
"6
By Tom Gmndhoeftr and Laura Offerdahl
compensation and is provided due pro-
cess. In Minnesota, the law requires a
local authority to develop the factual
basis for supporting a taking. The con-
demning authority must weigh the
evidence, consider local conditions,
and make difficult decisions about
whether the taking provides broad
public benefits. A court may overturn
the local authority's decision if the
authority's action was "manifesdy arbi-
trary or unreasonable." [City of Duluth
v. State, 390 N.W. 2d 757 (Minn.
1986)] In the context of economic
development and redevelopment, the
courts have consistently found that
creation of "permanent and temporary
employment," generation of "retail
sales," and expansion of a city's "tax
base" are all valid "public purposes"
that justi.f)r the use of eminent domain.
State law contains several protections
for property owners. Minn. Stat. ~
117.52 requires cities to pay relocation
benefits to individuals displaced by
eminent domain. Local authorities
acquiring property for transportation
purposes must provide early notification
to landowners whose property may be
the subject of an eminent domain pro-
ceeding, and negotiate in good faith with
the landowners prior to initiating the
eminent domain process. The law also
requires cities to obtain an appraisal,
make the appraisal information available
to property owners, and advise land-
owners that they may seek their own
appraisal and be reimbursed for appraisal
expenses up to $1,500. These numerous
protections exist to ensure property own-
ers are fairly and adequately
compensated.
MINNESOTh CITIES
While basic disputes about compen-
sation are inherent in any property
acquisition, Minnesota's process has
worked well for many years. It balances
the rights of individual landowners and
the general public, and is a fair and effi-
cient process for compensating property
owners.
A critical community development tool
The government uses eminent domain
to provide many public necessities-
roads and highways, water mains, sewer
lines, and other public services-on
land acquired from individual, private
property owners. Eminent domain is
vital to local community and economic
development efforts. Cities have few
tools available to help them redevelop
blighted areas and facilitate renewal of
their communities. Eminent domain is
critical to local efforts to spur economic
development that increases the local tax
base and creates new jobs. Generating
more local capacity through economic
development allows cities to continue
providing the quality services citizens
e>"'Pect and the infrastructure necessary
to support a thriving community. I~ is
imperative that cities be able to access
condemnation authority, when neces--
sary, to carry out a broader vision for
their communities.
ARMR proposal
Last session, ARMR proposed a broad,
legislative :fix to address a couple of
specific concerns related to the public
purpose and just compensation for a
taking. Specifically, the group pointed
to the City of Richfield v. Walser case, and
problems -with the right-of-way practices
of the Minnesota Department of Trans-
NOVEMBER-DECEMBER. 2004
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portation (MnlDOT), as the basis for
seeking extensive changes to Minnesota
law.
In 2002, the Minnesota Supreme
Court heard a landmark case involving
a taking by the city of Richfield of the
Walser Buick Dealership in order to
make way for the new Best Buy head-
quarters. In a 3-3 split decision, the
.court upheld a court of appeals decision,
finding that the city's condemnation of
the Walser property served a public
purpose. A year later, the Senate Trans-
portation Committee held a public
hearing on Mn/DOT's land acquisition
practices in response to a two-part
series published in the StarTriblme that
criticized the department's acquisition
of property for the expansion of High-
way 52 in the Rochester area.
ARMR's original bill would have
made two significant changes: it would
have required cities to prove by a pre-
ponderance of evidence that a taking
serves a primarily public purpose; and
it would have required cities to pay
property owners' attorney fees if the
final award exceeded the city's offer
by 20 percent.
A city that offers a property owner
too litde would have to pay the
landowner's attorney fees. And if the
city is taking the property and later
conveying it to a private party, then the
city would have to provide more evi-
dence supporting the public purpose
for the taking. While these changes
sound modest, the impacts are dramatic.
Consequences for economic development
and redevelopment
The ARMR proposal fundamentally
changes the relationship between courts
and local government bodies by elimi-
nating the deference historically given
to a local government decision and
shifting this decision-making to the
courts. This change creates uncertainty
in the development process, and puts
judges in the position of having to decide
on a case-by-case basis whether a par-
ticular project serves primarily a public
or private benefit. Such ad hoc judicial
second-guessing, which affords no
deference to the decisions oflocar elected
leaders, undermines the authority of
city officials to make complex decisions
about the future of a cOlIU11unity. .
The proposal also opens the question
of whether a court would ever find that
a taking serves a public purpose if the
property is eventually conveyed to a
NOVEMBER-DECEMBER 2004
private p:irty. Minnesota courts have
long held that the public purpose test
can be met even if the property is ulti-
mately conveyed to a private entity.
In interpreting the ARMR language,
a court might well conclude that the
Legislature intended to alter that con-
clusion. The result might mean that a
taking for these purposes would only
be upheld in unusual circumstances.
This uncertainty in the development
process could have a chilling effect on
economic development and redevelop-
ment activities around the state. For
example, ARMR's proposed changes
to eminent domain could prevent the
city of New Brighton from assembling
the parcels necessary to advance its
Northwest ,Quadrant redevelopment
proj ect. As a result, the city would lose
$317 million in new tax base, 750 units
of housing, and an opportunity to draw a
large corporate development to the area.
Limiting local government's ability
to take property for economic develop-
ment and redevelopment may call into
question the appropriateness of all gov-
ernment programs designed to generate
economie development. Actions that
redefine what qualifies as a "public use,"
or that require the courts to detennine
"public purpose" when a property is
acquired through eminent domain for
economic development and redevelop-
ment, may lead to scrutiny of other
govemment programs that use public
funds to influence economic develop-
ment activity.
Increasing the cost of p~blic projects
Allowing a court to award attorney fees
to a landowner if the :final damage award
exceeds "the condenming authority's
offer by 20 percent will encourage
litigation and result in more expensive
public projects. Since property values
tend to increase over time, it is possible
that the final award would often exceed
the acquiring authority's offer by
20 percent-not because the govem-
ment offered too little, but because
property values have increased during
the period of the negotiation. In addi-
tion, most condemnation cases involve
small strip takings for roads, water mains,
and sewer lines. In these cases, attorney
fees could easily surpass the amount of
the award.
Consequences for property owners
A.R1.'{1R's proposal does not serve the
interests of all property ovvners. A con-
MINNESOTA CITIES
denmatiol1 petition typically includes
many parcels. so efforts by one land-
ovvner to challenge public purpose
ultimately affects all the landowners in
the condemnation. This leaves all prop-
erty owners-including those who
choose to sell-in limbo while the court
decides the issue. While condenmation
is difficult for the affected landowners,
they ultimately want certainty so they
can make long-term plans.
Finding common ground
The Legislature and the administration
should carefully evaluate the impacts of
the ARMR proposal on economic de-
velopment and redevelopment efforts,
and on the vast m;rlority of landowners
who want to quickly settle or litigate a
fair price for their property and move
on. The League supports entrusting
these important decisions to those who
are elected and accountable to their
constituents. We will continue to fight
legal and legislative challenges that seek
to undermine the fundamental authority
of government to protect the public
health, safety, and welfare of citizens.
We believe legislative action during
the 2005 session on the broad issue of
public purpose would be premature
given the u.s. Supreme Court's impend-
ing review of the Kelo case; however,
we are willing to consider changes that
provide for a more transparent property
acquisition process. The League is
exploring several changes that would
streamline the appraisal and negotiation
process; provide more public notice and
opportunities for input; require legisla-
tive findings that clearly articulate the
public benefits associated with a taking
for development; and provide a reason-
able timeframe for challenging a taking.
The League will continue to work
to develop. legislation that improves the
land acquisition process without inlped-
ing critical development tools that
reverse blight; provide opportunities for
businesses to expand and create jobs; .
and create strong, vital communities. \!r
Tom Gnmdlzoiifer is gmeral counsel with
the League of Minnesota Cities. E-mail:
tgrundho@lm1Ic.org. Phone: (651) 281-
1266. Laura Offerdahl is il'ltel;govemmental
relations representative with the League if
Minnesota Cities. E-mail: lofferdahl@
lmnc.org. Phone: (651) 281-1260.
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