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Continued: Flexing legal muscles pumps up land prices for transit project

  • Article by: PAT DOYLE , Star Tribune
  • Last update: October 31, 2011 - 3:17 PM

As construction workers lay track for the Central Corridor light rail line, government and businesses are fighting a quiet battle over payments for nearby property.

One thing is clear: It pays to flex a little muscle.

While some property owners accept early government offers, those who deploy a lawyer, an appraiser or both can get a lot more money.

A case in point is the vacant Bremer Bank property in downtown St. Paul, which sits in the path of the line. Ramsey County valued it at $1.5 million and the state appraised it at $2.25 million.

But it fetched $2.65 million after the owner contacted an attorney, argued that the property was worth much more and signaled that he was willing to go to court to prove it.

"The owner came back and said ... 'We're going to have an appraisal of three million bucks,'" recalled Bryan Dodds, a Minnesota Department of Transportation supervisor who oversees the property acquisitions.

"I think he knew it was for real," said Stuart Nolan, co-owner of the building. "I wasn't kidding them."

More than one-fourth completed, the $957 million Central Corridor light-rail project requires acquiring rights to 132 parcels along its 11-mile path. While some are entire properties, others are small slices of land, sometimes needed only temporarily for construction access.

The Metropolitan Council, which is running the project and paying for it, has budgeted $29 million for the acquisitions. But the final payout could climb after negotiations and court action.

The Met Council and MnDOT recently settled condemnation disputes with property owners over 27 parcels. Eleven of them were settled for what MnDOT had offered.

But others, like the Bremer Bank building, took more taxpayer dollars to resolve.

"Threatening to go to court makes the acquisition more expensive," said Nicole Garnett, a professor of real estate law at the University of Notre Dame. "I do have concerns that ... governments pay too much sometimes because ... they want this done quickly."

Still, Garnett said there can be logic to such deals. "If paying a little more is going to save them more in the end ... that's a perfectly reasonable decision," she said.

One thing on which government and business negotiators readily agree: Calculating the value of private land taken for public use is an art as well as a science.

Dueling pricetags

The Central Corridor project is taking nearly 300 feet of hedging and other land from Hubbard Broadcasting's KSTP-TV along University Avenue and will affect fencing, a sprinkler system, trees, shrubs, mulch and plastic edging, according to a state appraiser.

The government appraisal valued all of it at $58,700 and called the offer "generous."

Hubbard Broadcasting sought $90,000 to $100,000, MnDOT said.

"We had our appraisals done," said Bruce Hagerty, director of building services at KSTP. "We had some conversations with professionals who advised us on real estate."

The two sides eventually settled at $74,555 rather than going to condemnation court. "If we hadn't reached an agreement, would we have been there?" Hagerty asked. "Yes."

Stanley Hubbard, KSTP's owner, said he wasn't directly involved in the negotiations. But Hubbard wasn't shy about his opinion of the light-rail project.

"The whole damn thing's a waste of taxpayers' money," he said.

More than a mile east of the Hubbard property, the Met Council paid 33 percent more than what MnDOT appraisers valued a sliver of land after the owner refused to accept the initial offer.

"I'm like, 'This is a fricking insult. No, screw you, go away,'" said Alan Peterson of J&A Properties Group.

The government is permanently taking 4 feet by 21 feet occupied by trees and shrubs and wedged between a building and University and Prior avenues.

MnDOT valued it and an adjacent piece of land needed temporarily during construction at $20,900. But Peterson insisted that the construction work would depress the rental value of a sound studio in the building's basement, so he hired a lawyer.

"We came up with over $40,000 in valuation lost," Peterson said.

The Met Council ultimately agreed to pay $28,000.

Peterson said the payment was unaffected by a state lien of $42,000 against him for unpaid taxes, which he is planning to contest.

Another business that got a better deal was the Waldorf Corp. The Central Corridor project needed permanent access to a portion of its parking lot at Raymond and Wabash avenues. Noting that the parking lot was contaminated, MnDOT valued the piece at $98,000.

"The owner wanted $150,000," Dodds said. "He had an attorney or appraiser review our appraisal and dig in."

The Met Council ended up paying $113,878.

The threat of a court fight and the possibility of paying a higher price and attorney fees "is an incentive for a governmental agency to settle," said Richard Rovang, a Met Council project director involved in approving the settlements.

Minnesota allows a government to take property before a final decision on the price, "but it is desirable to get a number reached so you know ... how much impact that's going to have on your budget," he said.

Eye of the beholder

While appraisers make detailed calculations, subjective factors also play a role.

As veteran real estate condemnation attorney Howard Roston of Minneapolis put it, "Appraising is both an art and a science." The dispute over the Bremer Bank building is a typical example.

MnDOT's appraiser concluded that downtown St. Paul is "a viable but stagnated cultural center" where values "are likely to remain fairly depressed."

Nolan disagreed. "We're in the heart of the skyway ... in the heart of the business district," he said. "I told [MnDOT] I talked to an attorney. ... If they had stayed at their original appraised amount, I know we would have gone to court."

"You judge, what is the risk of going to condemnation?" asked Dodds.

Pat Doyle • 612-673-4504

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