Build On This!

A pending U.S. Supreme Court case, Kelo v. City of New London, could have significant consequences for individual owners of real estate. Increasingly, cities are using the power of eminent domain to take property that is located within a redevelopment area and transfer it to a private developer. Although the taking of private property is authorized under the United States Constitution, governmental entities may only do so if it is for a “public use.” As cities become active participants in economic revitalization efforts, the nature of the debate between private rights and public needs is evolving, along with the definition of “public use.”

The central issue before the U.S. Supreme Court is whether a city's condemnation of non-blighted, private property for the purpose of developing private residential and office space is a valid "public use." The increased tax revenues to be paid by the new development are seen as benefiting the public as a whole. This redefinition of "public use" strikes a sensitive nerve, particularly given that today, the developers and the cities are often on the same side of a land-ownership dispute. In a typical land use takings case from earlier times, the developer would oppose the city's actions or ordinances on the grounds that they constitute an uncompensated taking of the developer's property rights. In the Kelo v. City of New London case, however, the developers are supporting the use of the government's power of eminent domain to take property from private individuals – the owners of property needed for an economic revitalization project. The common perception is that the land is really just being swapped from one private entity to another, with the government serving only as a middleman.

A city’s ability to take land by using the power of eminent domain arises from the Fifth Amendment to the United States Constitution, which states in part, "Nor shall property be taken for public use, without just compensation." The Fifth Amendment protects the right to own private property, but it also recognizes that the greater good may require the government to take private property for public use. The definition of "public use," however, has evolved over the years. Initially, takings disputes largely centered on wide-open areas needed for railroads and other public facilities.

More recently, the battleground became the urban neighborhood, where cities faced declining tax revenues as areas became "blighted" and values decreased. In 1954, this use of eminent domain was upheld by the U.S. Supreme Court in Berman v. Parker, where the Court held that the use of eminent domain as a planning tool to eliminate "blight" was a valid public use. Cities are now further expanding their use of eminent domain to take private property that is not blighted and transfer it to private developers with the expectation that the new development will generate increased tax revenue for the city. This expanded use of eminent domain gave rise to the case currently before the Supreme Court, Kelo v. City of New London.

In this case, the Supreme Court will address the use of eminent domain to take property from a private individual (the homeowner) and give it to another private individual (the developer). Cities argue that the redevelopment of property, even though it is not blighted, leads to an increased tax base, which benefits the public in general. Opponents argue that the practice is not about “public use,” but rather about giving favorable deals to developers.

While cities generally are in favor of an expansive power of eminent domain, there is growing opposition from private citizens concerned that without sufficient restrictions on the power, anyone's property can be taken whenever a developer proposes a new use that may generate greater tax revenue. On the other hand, economic revitalization of urban areas may be severely restricted without the use of eminent domain. Whatever the outcome by the Supreme Court, it is expected that the limits of the use of eminent domain should be established this year by this Supreme Court’s decision in Kelo v. City of New London.

The 2005 real estate market in Florida continues to be rosy. New residents continue to arrive in Florida at the average rate of 1,000 per day, and there does not appear to be any let up in the flow. Some of the new residents become part of the burgeoning workforce; others are retiring baby boomers. Another set, which may also fall into either of the above categories, are foreigners from many countries including, most notably, Canada and South America. These new residents require, and, as mentioned, are often part of, the expanding workforce needed to provide the services and infrastructure of the expanding South Florida community: new homes, schools, roads, parks, supermarkets, restaurants, retail centers, hospitals, office buildings, warehouses, industrial centers, and so on.

All of these factors create a fast moving real estate market with values escalating more rapidly than the national norm. The average sales price of a home in Fort Lauderdale in November, 2004 was $377,565. This average sales price represents a 28% increase over 2003. The median sale price of a home in Fort Lauderdale in November, 2004 was $294,000. This represents a 23% increase over 2003. Nationally, the average November, 2004 home sales price was $255,100 and the median home sales price was $175,000. One can see that the Florida prices are dramatically higher than their national counterparts. Bolstering the market is the average 30 year fixed mortgage, which has remained below 6%, thus enabling residents to obtain higher priced homes at lower interest rates.

Another exciting trend is the revitalization of downtown areas, business centers and industrial developments. As downtown areas become more populated, the available real estate decreases. Gentrification of blighted city areas is on the increase. Urban areas, such as Atlantic Avenue in Delray Beach, Florida are in the process of being beautified and urban market rates are rising. Office vacancy rates are going from the double digits to the single digits…for example, in Palm Beach County the 2004 office vacancy rate of 12.2% fell to 9.9%. Similarly, industrial space development is booming. In Palm Beach County, 478,500 square feet of industrial space is now under construction. This will increase the already existing 44.6 million square feet of industrial space.

Nationally, 2005 is predicted to be a strong year for home sales, commercial centers and industrial developments. Florida is not only expected to follow suit, but is expected to continue to be one of the fastest growing states in the nation. You may contact the Florida office of BDB for more information on how we can assist you in acquiring or selling real property in Florida.