Happy Monday Afternoon, everyone!
Just north of our Team's Keller Williams office, at the corner of Lincoln, Western, and Lawrence Avenues in the Lincoln Square Neighborhood of Chicago, there is a cluster of very old commercial buildings, one dating back to the late 1800's. Several are in disrepair, but several thriving businesses exist there, including a soccer supply store, and an older Walgreen's Store.
Earlier this year, the City of Chicago began to take action to acquire these properties, through Eminent Domain, with the idea that a private developer would build higher-end commercial and residential properties in character with this bustling neighborhood. This new development, they thought, would become a magnet for further development here, and neighborhood improvement. They created a Tax Increment Finance (TIF) District, and commissioned a study on possible uses for the property.
Historically, Eminent Domain and condemnation of property is a tool by which local and state governments acquire properties and use the land to build roads, schools, parks, or other public structures that benefit the general public good. In recent years, many localities, however, have used this process to favor certain well-connected developers, who profit greatly from these projects.
On December 5th, Chicago Alderman Eugene Schulter, whose 47th Ward includes the Lincoln Square Neighborhood, encountered loud protests from local residents, and, later, local business people, As a result of these concerns, Schulter softened his position, and said at least one of the affected parcels would be acquired strictly on a volunteer basis, "where the terms of the purchase are mutually acceptable" to all parties involved.
Here in Chicago, the local alderman's opinion carries a lot of weight in the decision making process, so his position on this matter is critical. At present, all of the properties involved are current on their taxes, and are held privately, by individuals or corporations. Several are held in trust.
Check out our posting at BlogChicagoHomes.com, as well as the article in the Lakeview Booster Newspaper, by reporter Lorraine Swanson, on December 12, 2007. Also, thanks to my associate here at Keller Williams, Chris Dwyer, for some Lincoln Square Chamber of Commerce insight on the matter.
We'll keep you posted on further developments!
Curious if anything similar has happened in your area. Let us know!
DEAN & DEAN'S TEAM CHICAGO
Dean - Since the Kelo v New London Supreme Court Case in June of 2005, their has been a lot of political activity to try to sort out this type of problem. In Kelo, as I recall, the Court upheld a taking of private property for use by a private developer on the theory that the benefit to the community of the renewal project was so great that the transaction did not violate the fifth amendment (reading in part. " No person shall ... be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation"). The concept that the use of private property by a private developer is still "public use" continues to be a little fuzzy to me, frankly. After Kelo, a number of states passed laws to prohibit this type of taking by local government - so you may need to make your feelings known to your state legislators.
I understand the argument that the improvement of blighted areas benefits the community, but this type of government action just does not pass the smell test in my view. I wish you luck.
Joan in NH, and Everyone -
FYI, Illinois law has a simiar prohibition against using eminent domain for private gain, unless the property is in a "blighted area," and the private buyer can conclusively demonstrate the parcel is "necessary" for the "success" of the project. The property here in the Lincoln Square neighborhood is in need of considerable repair, but not blighted. My associate and office mate, Chris Dwyer, is active in the Lincoln Square Neighborhood Chamber of Commerce, and said local officials were wary of a "Big Box" store like Best Buy acquiring the property, and wanted to "guide" the process.
From what I understand, no particular developer is apparently favored - overtly, anyway. But many well-connected companies would love to develop this well-located piece of real estate, in the heart of a thriving, appreciating neighborhood. Condos and retail should do well there!
Click here if you feel lonely, and would like to read the legislation in place in IL to deal with acquisition by condemnation and eminant domain.
DEAN & DEAN'S TEAM CHICAGO
Hi Dean,
We, too, are seeing more and more of this. The new PETCO Park base ball park (affectionately referred to as the "litter box") in downtown San Diego is a perfect example. It requires guts and a determination to fight for what's right.
For those who lose the battle and receive proceeds from the government agency that took your property you can still defer the income tax consequences under Section 1033 of the Internal Revenue Code or the 1033 exchange. The condemnation by eminent domain is also referred to as an "involuntary conversion." The 1033 exchange allows you to take the proceeds from the involuntary conversion and reinvest in other like kind property in order to defer the payment of your capital gain and depreciation recapture income tax liabilities.
Taxpayers have three (3) years to reinvest under an eminent domain action or four (4) years if it is their primary residence. And, unlike the 1031 exchange, the taxpayer can keep some or all of the cash as long as they reinvest by trading equal or up in value.
Involuntary conversions are not fun and are most likely painful, but with the 1033 exchange their might be a little silver lining.