Eminent domain activity is heating up, and developers should pay attention. From the Infrastructure Investment and Jobs Act, which passed in 2021, to evolving legal definitions and policy, eminent domain cases are becoming more common and more complex. Developers are increasingly coming into contact with eminent domain activity—both to their benefit and frustration—and it’s important to understand eminent domain usage and how it could affect projects in your area.
Here are four ways that trends related to eminent domain law could impact your development strategy or project this year.
1. More Opportunity for Public-Private Partnerships
The Infrastructure Investment and Jobs Act has the potential to generate significant activity for commercial real estate developers. Passed in 2021 with tremendous bipartisan support, the act allocates $1.2 trillion for transportation and infrastructure investment. While much of the investment will be spent on non-real estate endeavors, like repairs to bridges and roadways, installing broadband services across the US, and upgrading energy grids, it also will fund many real estate projects, like airports and train and transit stations, industrial facilities to improve supply chains and the development of blighted sites. Commercial real estate developers will see an influx of opportunities to work with city and local governments on these projects through public-private partnerships, with some estimates expecting that public-private partnership funding will double.
2. Longer Wait to Resolve Eminent Domain Cases
The Infrastructure Investment and Jobs Act will certainly increase opportunities for developers—but it will also substantially increase the number of active eminent domain cases. Legal experts agree that eminent domain cases have been on the rise over the last two years, and they are expected to continue to increase. As a result of the uptick in cases along with outlying factors, like a backlog in the court system, eminent domain cases are taking longer to resolve. In addition, the government is utilizing quick take action more often to immediately seize property and expedite projects that are in the public interest. For existing owners or developers with projects, there is an increased risk that the government could use eminent domain to appropriate land assets for infrastructure projects. Developers seeking to fight eminent domain or dispute the value assigned in a quick take action are potentially facing a years-long battle before the case is settled.
3. Improving Development Fundamentals
Eminent domain is most commonly utilized as part of an infrastructure or public works project. It provides land, which may not be already in the public domain, to pursue projects that benefit the public. While eminent domain is a thorn for owners and developers when it’s being used against them, public works projects have a greater economic benefit that has a net value for real estate stakeholders in the long run. Research from Cushman & Wakefield estimates that infrastructure investments will generate 3.5% GDP growth through 2031, a total of $758 billion in economic output. This economic activity is a boon for developers, who will find better local market fundamentals and improved demand as a result. In fact, Cushman also estimates that multifamily, office, industrial, and retail properties will see a 1.2% increase in demand. Developers will find increased opportunity to deliver projects into markets with infrastructure initiatives.
4. Evolving Legal Definitions
As a result of the increased infrastructure construction, governments are updating legal definitions and policies related to eminent domain action. In particular, the broad legal definition of blight—a common term in eminent domain cases—has shifted. Blighted properties are easier for the government to take over or even to devalue, but some community stakeholders have argued that these properties are still economically viable. In fact, 40% of public projects in the US that utilize eminent domain are economic development projects. This year, several local agencies are looking to tighten the definition of blight. In addition, local governments are redefining other terms related to eminent domain, like public use and right-of-way, to create more specific definitions. Often, new definitions will help support the government’s ability to utilize an eminent domain action.
With increasing infrastructure investment, it’s now more important than ever for developers to understand eminent domain laws and how eminent domain activity is impacting local communities. Both the impact—particularly if you have a project that might be utilized for an infrastructure improvement—and the benefits are far-reaching. These changes are another reason for developers to streamline operations and create valuable efficiencies to support developments from start to finish.
Advanced software like Northspyre is the best way for developers to optimize the development process and prepare for changing market dynamics and trends. When a project is optimized through Northspyre, developers are more prepared to adapt and respond to unexpected events, like eminent domain actions, and take advantage of the benefits of infrastructure investment in local communities.
