8/08/2005

Eminent domain helps Target, Best Buy: (Minneapolis/St Paul MN) Business Journal, 7/29/05

By Ellen P. Gabler

Long before the U.S. Supreme Court ruled on June 23 that local governments can condemn private property for more-profitable private uses, Minnesota's largest big-box retailers were benefiting from the practice across the nation.

Minneapolis-based Target Corp. and Richfield-based Best Buy Co. Inc. are attractive tenants for cities that want to boost their property-tax revenue by building lucrative retail centers, often in place of less-valuable homes or businesses.

The jury's still out, however, on what the decision ultimately will mean for big retailers and the local governments that want a piece of them.

Some think it will prod cities to be more aggressive. Others say a backlash against retailers and local-government power is inevitable.

It's difficult to tell exactly how many cities have taken property to make room for Target, Best Buy and other big-box retailers.

But there are several examples nationally, and some notorious local cases, that involve both retailers. In Minnesota, both Target and Best Buy tangled with messy eminent domain disputes that began in the late '90s and dragged into the new millennium.
  • In 1998, the city of Minneapolis condemned the land for Target's downtown store. Part of it was owned by Minnetonka developer Opus Northwest, which lost its suit against the city to stop the project. Rival developer Ryan Cos. U.S. Inc. built the store and office tower there.
  • In 2001, the city of Richfield condemned two Walser Automotive Group dealerships along Interstate 494 to clear the land for Best Buy's corporate headquarters. Walser sued the city, and the courts affirmed the deal, but raised the amount that the city had to pay for the property.
  • In 2003, a federal judge scolded Target for its role in helping condemn a site in St. Louis that the company wanted to own instead of lease. The judge said Target falsely threatened the city that it would abandon the store if officials didn't take the property from its owner and allow Target to buy it.
  • Currently, a developer in Washington, D.C., is urging city officials to condemn a strip mall so it can build a complex anchored by Target. The developer says the project will create 300 jobs and add $3.3 million in annual tax revenue.
  • In Topeka, Kan., Doug Kinsinger is grateful for eminent domain because it helped the city land a large Target distribution center. The president and CEO of the Greater Topeka Chamber of Commerce said the deal brought 800 jobs to a new industrial and commerce park in 2002. Also, the city threw in $2 million to help acquire the land. But some businesses lost properties as a result.

Corporate welfare?
Nick Dranias calls deals like that "corporate welfare."

Dranias is an attorney for the Minnesota chapter of the Institute for Justice, a public-interest law firm in Washington, D.C. The firm represented homeowners in the case that went before the Supreme Court.

In that case, homeowners in New London, Conn., sued the city for condemning their land to make way for a private development. In a 5-4 decision, the homeowners lost.

That set a precedent allowing local governments to seize homes and businesses for private development. In the past, eminent domain was traditionally reserved for projects tied to public use, such as highways, police stations or hospitals. Over the years, eliminating blighted properties has qualified as well.

By giving local governments broader power of eminent domain, Dranias said, the court has created an open invitation for big-box retailers to elbow their way into quiet communities. The decision also will induce cities to scramble for business, even at the expense of others, he said.

But advocates of the ruling say it will help developers get their jobs done, and assist cities in valuable community redevelopment efforts.

It's not the retailers
In a written statement, Target says it "rarely" uses eminent domain to acquire property and thus won't be affected by the ruling.

Best Buy declined to comment for this story.

Collin Barr, a real estate developer with Ryan Cos., which builds frequently for Target, said big-box retailers aren't really to blame because they aren't usually the ones pining to break ground in new developments. Most often, the push comes from local officials who want to craft a vision for their city, then invite retailers to help make it happen.

"I don't view [the court ruling] as a massive new tool for big boxes to rule over urban America," Barr said. "In the most cases, cities are pursuing it on their behalf."

That's what happened in Richfield, as city officials successfully went after Best Buy's headquarters.

The deal certainly helped change the city's image as an aging inner-ring suburb, but it also means a better tax base.

Bruce Palmborg, Richfield's director of community development, said annual property taxes for Best Buy's corporate headquarters are about $3.2 million, although most of that becomes tax-increment revenue that repays the cost of the project through 2025. The previous property owners generated $700,000 in annual taxes.

The Institute for Justice reports that between 1998 and 2003, local governments threatened to condemn more than 10,000 properties for private use.

Dranias said the group is worried that scarce land, especially in urban areas, and increasingly competitive retail and real estate markets will make condemnation too appealing.

"It's a lot easier to deal with people that have no choice to sell, than to deal with people that have a choice," he said. "Large developers are going to see this as something they need to look at economically."

Change of venue
Legal experts think the Supreme Court's ruling could spur both city governments and community protectors into action, just in opposite directions.

Blaine Harstad, a lawyer with Minneapolis-based Gray Plant Mooty, said he thinks the ruling has fueled the confidence of city governments to more readily use condemnation.

But the decision has sparked an uproar, and legislators across the country want to toughen laws to make it more difficult for governments to seize land and redistribute it for private use. The Supreme Court justices noted that nothing precludes states from limiting government's power of eminent domain.

In Minnesota, courts have generally allowed condemnation for private redevelopment. That could change. Last month, Rep. Greg David, R-Preston, introduced a bill to tighten government control.


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