What You Should Know About Eminent Domain in Today's Market

The $1 billion bipartisan infrastructure bill passed in 2021 was met with excitement and enthusiasm from the commercial real estate community. Infrastructure investment has significant benefits for local economies and generates higher productivity. Cushman & Wakefield estimated that the investment in infrastructure could increase demand for office, industrial, retail and multifamily by 1.2% over the next five years.

While the bill overall is a net positive for real estate stakeholders, according to Anthony DellaPelle, Esq., CRE, the 2024 global chair of the Counselors of Real Estate, it also could create new complications for eminent domain cases, including the length of time it takes to settle a case in court and the frequency of quick-take actions.

More and Longer Eminent Domain Cases

The infrastructure funding will make its way to most US markets, but it will target states with large populations, like California, Texas, New York and Florida. Less populous states will also see significant funding, particularly those with significant recent population growth, like Arizona.

“In some places, you may not see big changes, and in other places there will be dramatic changes,” says DellaPelle, who is also a managing partner at McKirdy, Riskin, Olson & DellaPelle. These cases may trigger new eminent domain actions if the local government is looking to expand existing infrastructure or pursue new infrastructure projects.

As a standard, eminent domain cases don’t happen overnight, says DellaPelle. For example, a new passenger train tunnel running under the Hudson River from New Jersey to New York has been in the works for 20 years. DellaPelle says that there is usually a multi-year window from the inception of right-of-way acquisitions to shovels getting into the ground.

The increase in eminent domain cases will only prolong this timeline. “There’s a very large backlog of cases in the courts around most of the country. It’s taking in general longer for cases to work through the court system,” he adds.

DellaPelle notes there are some other outlying issues owners might face. If there is a prospective project in the area, for example, it may affect an owner’s ability to sign income producing tenants due to fear that they won’t be able to fulfill the full lease term.

Expect More Quick-Take Action

The government will have an interest in utilizing the available funding and expediting the timeline of the project—it may not want to wait years to get shovels into the ground. As a result, DellaPelle is expecting an increase in quick-take actions, where the government can take a private property “quickly” by filing an eminent domain case and making its offer of compensation available to the owners, while the ultimate value and award of “just compensation” is deferred and decided in the litigation.

If there is a dispute about the fair market value, the owner may have to wait years to properly dispute the claim in court. This process is allowed under the law, because the court sees the infrastructure project as being in the public interest and the quick take process allows the taking to occur before the litigation is resolved.

“When it’s an infrastructure project, it is very common for quick take to be used,” says DellaPelle, who has nearly 40 years of experience working on these cases. The infrastructure bill is sure to create and complicate eminent domain cases over the next several years, and owners should be prepared to navigate through an increasingly complicated system.

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