Owner awarded approx. $25M for condemnation of private property in Harrison, NJ

In a recent arbitration, a panel of arbitrators awarded property owner, Harrison Eagle, LLP nearly $25 million for the taking of approximately 10 acres of property adjacent to the PATH commuter rail station and proximate to the Red Bull Arena in Harrison, NJ. The town’s redevelopment agency used the power of eminent domain to take the private property and convey it to a private redeveloper and as such the arbitration amount is to be paid to the owner by the developer, Pegasus Group. The property, located across the Passaic River from Newark, contained approximately 7 acres of surface parking (about 1,000 spaces) as well as 200,000 square feet of multi-story industrial buildings.

In 1997, the Town of Harrison designated the area surrounding the Harrison Eagle property as an “area in need of redevelopment.” The designated redevelopment area contains approximately 270 acres – almost 1/3 of the town’s entire land area. In attempts to maintain ownership, several property owners whose properties were located within the redevelopment area challenged the redevelopment designation on the basis that the area was not blighted. None of these earlier challenges were successful in court and the town initiated condemnation proceedings in 2006 to take the Harrison Eagle property as well as two other adjacent properties.

Facing the potential loss of their properties by eminent domain, these three owners challenged the taking on the basis that both the area and their properties were not blighted and as such the town had no right to condemn. Like their predecessors, the owners lost in the trial court but sought review by the appellate court. In 2008, the Appellate Division remanded the case back to the trial court for further review on the basis that the town’s notice concerning the 1997 redevelopment hearings was deficient. See Harrison Redevelopment Agency v. DeRose, et al, 398 N.J. Super. 361 (App. Div. 2008). The appellate court found that:

We hold that, unless a municipality provides the property owner with contemporaneous written notice that fairly alerts the owner that (1) his or her property has been designated for redevelopment, (2) the designation operates as a finding of public purpose and authorizes the municipality to acquire the property against the owner’s will, and (3) informs the owner of the time limits within which the owner may take legal action to challenge that designation, an owner constitutionally preserves the right to contest the designation, by way of affirmative defense to an ensuing condemnation action.

-SABATINO, J.A.D.

Because the appellate court found that the 1997 notices were deficient, it concluded that the owners retained the right to challenge the taking of their properties in 2006. While the matter was on remand to the trial court, the attorneys of McKirdy & Riskin,* who represented Harrison Eagle, successfully argued for and obtained an injunction requiring the redeveloper to stop work on the project. (See NJ.com here for more details on the judge’s order halting the redevelopment.) Because of this injunction, Harrison Eagle’s attorneys were able to negotiate a settlement prior to the trial court’s determination of whether the town had the right to condemn the properties for redevelopment purposes. The settlement required that the property owner give up the challenge to the taking in exchange for an agreement to resolve the issues of just compensation and environmental liability by binding arbitration as well as an additional payment of $5 million in addition to any award of just compensation determined at arbitration.

The issues concerning the just compensation and environmental liability of this former industrial site and commuter parking facility are somewhat complex. As such, the arbitrators decided each issue separately. In the environmental arbitration, Pegasus Group argued that remediation would cost $16 million to clean the site. The owner countered that the clean-up costs would be approximately $2.5 million. Based upon the evidence presented by both sides, the arbitrators concluded that a remediation expense of $4.5 million was appropriate.

In the arbitration to determine the value of the property, the redeveloper submitted an amended appraisal valuing the property at $13 million, a number $2 million lower than the first appraisal of $15 million prepared 5 years earlier. The $13 million amended appraisal reduced the property’s value by $2 million based upon environmental “stigma.” By contrast, the property owner’s appraisal valued the property at $35 million. The arbitrators split the difference between the parties and awarded the owner $24 million as just compensation. “We were pleased that the arbitration panel recognized that these properties had significant value, although it is unfortunate that our client had to endure such a long and difficult battle just to protect his family’s property rights,” said Tony Della Pelle, one of the attorneys representing Harrison Eagle.

This award was quite significant considering that the attorneys for Pegasus group originally suggested that the property owner should pay the redeveloper $3 million for the condemnation of the property. This negative compensation was based upon the redeveloper’s belief that the property was worth $13 million (with environmental “stigma”) and would require an investment of $16 million to remediate (for environmental “clean-up”) resulting in a liability of -$3 million payable by the owner! The redeveloper suggested this negative just compensation disregarding the fact that the property had earned considerable income annually and that the owner would lose this income producing asset. “Imagine how our client felt when the redeveloper’s initial offer suggested that the property would be taken and that little or no compensation would be paid even though these properties had generated income of several hundreds of thousands of dollars each and every year,” explained Tony Della Pelle.

In the end, the property owner receives almost $25 million ($24 million just compensation – $4.5 million environmental liability + $5 million agreed payment to settle by arbitration) for the taking – quite a difference between the estimated -$3 million suggested by the redeveloper. While this is a certainly a victory for the owner, it is not a windfall. The owner lost a very unique piece of property, a profitable commuter parking facility, and will unlikely be able to find a replacement as there are simply few, if any, properties adjacent to commuter PATH stations in New Jersey in which to invest.

More details about this case are available at “Harrison Developer to pay $24M for eminent domain takeover of parcels near PATH.”

*Disclosure: Edward McKirdy and Tony Della Pelle of McKirdy & Riskin, PA (www.mckirdyriskin.com) in Morristown, NJ represented the property owner, Harrison Eagle and the Adler Family, in the condemnation action and through the valuation arbitration. Both attorneys are affiliated with the Owners’ Counsel of America; Mr. McKirdy is the New Jersey member of OCA.

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