Infrastructure Projects Spur Eminent Domain Filings to Seize CRE

Legal experts are warning CRE property owners they need to prepare for an onslaught of eminent domain land seizures by government entities initiating projects funded by the $1.2-trillion Infrastructure Investment and Jobs Act signed into law by President Biden in November. 

“The (Infrastructure) Act will undoubtedly lead to a significant increase in eminent domain activity to acquire the property rights necessary to implement new infrastructure projects. Many businesses are not ready (for this),” the National Law Review said in a recent report.

The tsunami of federal spending, spread over the next five years, will support a wide range of infrastructure projects—including new roads, bridges, rail, mass transit, electric power transmission and water systems—many of which will involve government entities establishing right-of-way access by seizing private property using eminent domain.

What is expected to be a five-year parade of eminent domain cases across the nation got underway this month a few blocks away from the US Capitol, as Amtrak filed an eminent domain case against a CRE company in New York that subleases 425K SF of retail space in Union Station in Washington DC.

Amtrak claims it must take over the entire facility in order to complete improvements that will triple the capacity of the nation’s second-busiest train station, which serves more than 5 million passengers annually.

In a complaint filed in District of Columbia District Court last week, Amtrak claimed it can’t complete its master plan, adopted in 2017, to expand Union Station if Union Station Investco LLC, an entity of New York real estate firm Ashkenazy Acquisition Corp., continues to hold the retail space located in a two-story promenade that overlooks the huge lobby of the train station.

Amtrak’s 20-year master plan for Union Station involves extending an existing passenger concourse and building two additional concourses. Amtrak’s plan also calls for rebuilding the basement of the station, replacing beams, girders and columns it says have become structurally deficient.

Amtrak’s project to expand Union Station is a joint effort with the US Department of Transportation and the Federal Railroad Administration.

The Washington Post reported that Amtrak has offered Union Station Investco $250 million to buy the property, but Ashkenazy did not meet a deadline to respond to the offer, prompting Amtrak to place the funds for the purchase in an escrow account held by the court as the case is adjudicated. 

Amtrak said in its filing it has been unsuccessfully negotiating with Union Station Investco since 2018 to acquire the retail space for the station rebuilding. Ashkenazy signed a sublease for the property with an entity created by Congress, the Union Station Redevelopment Corp., in 2007.

Compensation for condemnation of private property by the government using eminent domain is required by the Fifth Amendment of the US Constitution. Property owners can appeal government seizures of property by filing an “inverse condemnation” claim, the legal term for a lawsuit alleging they were not properly compensated.

Last year, Hawaii established a two-year statute of limitations for the filing of an inverse condemnation claim against the state by a property owner. The ruling came out of a case involving a 2011 decision by the Hawaii Land Use Commission (LUC) to reclassify for agricultural use more than 1,000 acres, owned by a residential developer, that had been designated by the LUC in 1989 for “urban” use.

LUC claimed the owner violated an agreement to build affordable housing on the site. The property owner, DW Aina Le’a Development, LLC, waited until 2017 to file an inverse condemnation claim

The state legislature in North Carolina is expected to approve an amendment to the state constitution stipulating that property owners have the right to a jury trial to settle eminent domain disputes.

The National Law Review report said condemnors’ appraisals in eminent domain cases tend to underestimate the value of the property; it also said government entities usually will not entertain offers from property owners if the owners don’t support their offer with an appraisal. 

A typical property appraisal can cost between $5K and $10K, but it can lead to an “exponential increase” in compensation, the report said.