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Kelo Ruling Bolsters Private Development As Public Use

Urban developers looking to assemble land parcels have a powerful new ally: the U.S. Supreme Court. With last week’s 5-4 decision in Kelo vs. City of New London, the Justices ruled that courts — particularly the federal courts — will defer to local governments on the economic development front.

The closely watched Kelo case hinged on working-class residents who refused to sell their homes in advance of a 90-acre, mixed-use project championed by New London, Conn.’s economic development arm. Simply put, the ruling broadens cities’ power to condemn single-family homes through eminent domain in order to develop commercial projects.

“As a developer, I think this is a very positive decision,” says Rodney Propp, chairman of urban developer Tahl-Propp Equities. His New York-based firm has developed roughly 3 million sq. ft. of retail and residential space in the metropolitan region.

Propp sees the ruling as proof that wider economic interests outweigh the rights of a few individual property owners. That would be a one-sided view if he didn’t know firsthand what it’s like to be on the receiving end of a bulldozer. “Sure, we’ve had properties condemned in Florida to make way for other uses, and we were fairly compensated. It’s often best for the local economy if other uses are introduced,” he adds.

Historically, the high court has let the government determine what potential use is in the best interest of the public. With this decision, though, economic development is now loosely defined as a legitimate “public use,” making it easier for cities to condemn parcels of property in order for private developers to build on them. In the past, condemnation was typically reserved to clear the way for public uses such as roads and highways. In her dissent, Justice Sandra Day O’Connor cautioned that “the specter of condemnation hangs over all property. Nothing is to prevent the state from replacing any Motel 6 with a Ritz-Carlton, any home with a shopping mall, or any farm with a factory.” Chief Justice William Rehnquist and Justices Antonin Scalia and Clarence Thomas also joined the dissent.

To John McIlwain, senior resident for housing at the Urban Land Institute, any ripple effects from the ruling will pale next to the outraged response it triggered. The Wall Street Journal, for example, published an opinion piece on June 27 with the headline “Supreme Folly.” Among other adjectives, the writer—University of Chicago law professor Richard Epstein—called the Kelo verdict “shameful” and “horrible”. Those are strong words. ULI’s McIlwain, for his part, doubts the ruling will unleash a flood of condemnation proceedings throughout the nation. “Everyone has been hyperventilating about this case. From a city’s point of view, it gives them more power to redevelop blighted neighborhoods. But it also changes the idea of what constitutes blight,” says McIlvain. Scott Mollen, a real estate litigation partner at New York City-based Herrick, Fienstein LLP, says that the majority opinion simply recognized that economic development is as much a public use as building a new road. What’s more, says Mollen, the court also recognized that “the common good can’t be sabotaged by an individual property owner that refuses to sell.”

Nor does Mollen believe that urban renewal projects are strictly designed to remove minority residents, as some have suggested. “These large-scale urban developments bring enormous benefits to the minority community through added jobs and bigger tax base that can pay for better community services.”

Adds Mollen: “You shouldn’t second-guess local officials who are trying to solve urban blight problems.”

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