Eminent domain verdict: financial crisis for Jersey City

A Hudson County jury awarded $18.6 million on September 22 to property owners Ronald, Katherine, and Lynn Kerrigan for 3.41 acres acquired by the Jersey City Redevelopment Agency (JCRA). The unanimous verdict was reached by 8 jurors, concluding the 10-day eminent domain trial before Judge Mark J. Baber.

The property, with 500 feet of frontage on the tidewater basin opposite Liberty State Park, is located at the lower end of Jersey Avenue and has unobstructed panoramic views south and east of lower Manhattan, Ellis Island, and the Statue of Liberty. The property was zoned R4, high rise residential, by Jersey City in 1974, 30 years prior to the filing of the condemnation complaint and date of valuation on August 26, 2004. N.J.S.A. 20:3-30(b). The initial offer of JCRA was $1.25 million based on the appraisal of Robert VonEnken, MAI, of the firm of Grubb & Ellis, New York. Mr. Von Enken valued the property as industrial land based on its current use as an industrial facility leased to the Warren George Co., a geotechnical drilling operation, which utilized the property’s waterfront for its tugboats, barges, and drill rigs which were used for test borings in the Hudson River and elsewhere.

In April 2008, Judge Baber ruled the 1974 R4 zoning was applicable to the acquisition. This resulted in new appraisals from JCRA increasing the value to $3.8 million. Mr. Von Enken hypothesized a 10 year interim industrial use, followed by the residential use in 2014. The residential value was estimated to be $6 million, discounted by 10 years to the date of valuation. To this he added the interim industrial use value, based on capitalization of income from the Warren George lease. The legal validity of this theory is questionable. Discounted cash flow analysis has been criticized and rejected by the New Jersey Tax Court. See University Plaza Realty Corp. v. Hackensack, 12 NJ Tax 354, 366-367 (1992), affirmed 264 NJ Super 355 (App. Div 1993).

The property owners presented values of $25 million and $31 million respectively from appraisal experts Maurice Stack of Stack, Coolahan & Stack of Hoboken, and Louis Izenberg, MAI, of Parsippany. The jury also heard engineering and planning experts testify. Richard Price, P.P., of Phillips Price Shapiro, New York, testified for JCRA as did Fred Worstel, P.E. from Dresdner Robin, Jersey City. Peter Steck, P.P., presented planning testimony for the Kerrigans, and Michael Spillane, P.E., Rockaway, New Jersey, testified as the Kerrigan’s engineer. Both Mr. Stack and Mr. Izenberg adopted planner Peter Steck’s opinion that 420 residential units could be constructed on the property. The appraisers valued the residential units at $70,000 and $75,000 per unit respectively. 

The jury deliberated more than 5 hours and reviewed hundreds of exhibits in evidence before rendering its verdict. Predictably, Robert Antonicello, executive director of JCRA, indicated that JCRA would appeal the verdict. Liberty Harbor North developer, Peter Mocco, had no comment for the Jersey Journal. (See "Jury says Jersey City must pay owners $18.6 million for land it seized," by Ken Thorbourne.)

The judgment is a financial obligation of JCRA. The JCRA obligation, with statutory interest, is more than $21 million and accrues interest at more than $4,000 per day for each day it remains unpaid after Sept 22, 2008. Interest is a statutory obligation of the condemning authority. N.J.S.A. 20:3-31, Rule 4:42-11 (a)(ii).  Interest is compounded annually. Borough of Wildwood Crest v. Smith, 235 NJ Super 453 (Law Div.), aff’d 235 NJ Super 404 (App. Div 1988) See generally, Casino Redevelopment Authority v. Hauck, 317 NJ Super 584 (App Div 1999), cert granted, 160 NJ 476 (1999), aff’d o.b. 162 NJ 576 (2000).

A major concern of the Kerrigans, assuming the verdict is upheld on appeal, is the issue of payment. The Kerrigans will ask the court to immediately order the JCRA increase its statutory deposit to $3.8 million commensurate with its revised appraisal. N.J.S.A. 20:3-18. The Kerrigans will also ask the court to force JCRA to post a bond or deposit the judgment in the Superior Court Trust Fund pending appeal, R 2:9-5, R 2:9-6. JCRA’s answer will be that they have a developers’ agreement pursuant to the Local Redevelopment Housing Law (LRHL) with the developer, Liberty Harbor North LLC (Peter Mocco), obligating Liberty Harbor North to pay all costs related to the acquisition (i.e. attorneys fees, experts fees, acquisition costs, and relocation costs.) N.J.S.A. 40A:12A-8, N.J.S.A. 20:4-1.

The property owner has no way of knowing the financial assets of the developer, Liberty Harbor North LLC. This is further complicated by the fact that this entity is not a party to the condemnation case. See City of Asbury Park v. Asbury Park Towers, 388 NJ Super 1 (App. Div. 2006). The developer is the wizard behind the curtain. The developer controls all the financial aspects of the acquisition, but the developer is not answerable to the jurisdiction of the Superior Court in the context of the condemnation case. See also JCRA v. Costello, 252 NJ Super 247 (App. Div. 1991) cert denied, 126 NJ 332 (1991).

It is problematic that under current market conditions, neither JCRA nor the developer will be able to borrow the funds necessary to satisfy the judgment. JCRA, as plaintiff, must pay the judgment. Liberty Harbor North, as developer, must reimburse JCRA per their developer’s agreement. This developer controls, by virtue of its redevelopment agreement, 85 acres of the most valuable property along the Hudson River waterfront. The redevelopment agreement was signed in 1985, when Gerald McCann was mayor of Jersey City. If JCRA/Liberty Harbor North LLC cannot bond the judgment or deposit the full amount into Superior Court Trust Fund, Jersey City should take the necessary steps to rescind the JCRA contract with Liberty Harbor North LLC. The city could then bring in developers with a more solid financial footing. The Jersey City waterfront renaissance, often referred to as the “Gold Coast,” has seen large successful investments by the largest developers: Toll Bros, Metro Homes, Pulte Homes, the Trump Organization, K Hovnanian, and of course, Goldman Sachs. It’s time to reconsider the wisdom of putting all this prime real estate in the hands of one entity.

It is expected that the JCRA will file a motion for a new trial, which must be done within 20 days of the verdict. R 4:49-1(a), (b) This is the first step in anticipation of an appeal, which must be filed within 45 days of the order entering final judgment. R 2:4-1(a).