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elo vs. New London is arguably the most significant court ruling our industry has had to digest in years. No sooner had the Supreme Court issued its 5-4 decision than legislatures around the country began drafting state laws to limit its application. I'm no lawyer, but what's unsettling to me is what the ruling does not say, such as what the standard should be regarding ad hoc condemnations, and more importantly, how just compensation is to be determined.

by MARK AREND

     It's the latter point that should be of interest to the corporate real estate side of the buy-sell equation that is economic development. As industrial asset managers begin to find themselves on the "takee" side of the eminent domain issue, they'll have more than a bad stomach ache to complain about.
     As our July 2005 cover story illustrated, large industrial companies are increasingly savvy where asset disposition is concerned. US Steel Real Estate's strategy is to hold onto land holdings and other assets, invest in their upkeep and then sell those assets — or develop those assets themselves and realize a better return than by turning them over to a private developer.
     Making those calls in such a way that the organization's bottom line is improved, or turning nonperforming assets into performing ones, is the central, strategic role today's industrial corporate real estate manager can and should play. In this context, leaving the just-compensation question to future court proceedings creates a monster.
     Another unsettling aspect to Kelo is that it's a case of taking assets that are not blighted, which is somewhat new territory in the eminent domain arena.
     "If you have corporate assets that are not blighted, they may be exposed to something like this," says Kevin Shepherd, co-chair of Venable LLP's Real Estate Practice Group, in Baltimore, and chair of the American Bar Association's Real Property, Probate and Trust Law Section.
     On the just-compensation matter, "If you think an area is going to be redeveloped, the value of that land may be more enhanced than would have been the case," says Shepherd, and enhanced compensation may be in order. "It remains to be seen what just compensation is in this context. That's a very real consideration."
     And it's one that is not likely to be resolved any time soon. The ruling raises other questions as well — more than it answers, it seems.

Till next time,