Two Sides Of The Eminent Domain Coin on

Heads or tails, there’s an impact on commercial real estate (CRE)

Most people are familiar with the term “eminent domain”—a phrase that can instill fear and panic in residential and commercial property owners. It can also stoke impassioned protests and, naturally, lawsuits in neighborhoods around the country. In the collective mind’s eye, it’s often viewed as a public battle of David and Goliath proportions.

That, however, is only one side of the coin. Flip it over, and eminent domain can easily be something property investors don’t even think about. But if it’s ignored and you’re caught off-guard, it could suddenly place an entire investment at risk.

What is eminent domain?

Also known as condemnation, eminent domain is a process by which the government—from the federal level down to the local level—or its agent can condemn and seize private property for the “public good” in exchange for “just compensation.”

The basis for it is found in the 5th Amendment of the United States Constitution. While condemnation laws have slight variations from state to state, every single piece of property in all 50 states is subject to being completely taken or damaged to support a public project.

While that seems like a very straightforward explanation, it is, in fact, a gray area. Just what is the “public good?” Traditionally, most people think of the public good as big infrastructure improvement projects, such as a runway expansion at the airport, a new highway interchange to ease traffic congestion, or, in the case of Miami, a 10-foot wall to protect the coast from a storm surge.

The ruling that changed “public good”

“Public good” became less clear following a 2005 Supreme Court ruling. In Kelo vs. City of New London, a Connecticut woman sued the city after it deemed her remodeled home as blight in an effort to condemn her property. The city was making way for an expansion of a private company to realize ensuing tax benefits and an economic boom in her neighborhood. The Court ruled (5-4) that economic improvements can be interpreted as being for the “public good.”

The result of this controversial decision was that more county and municipal governments embraced eminent domain and partnered with developers in efforts to ignite economic development. Many of these initiatives were met with legal challenges. The court system examined each case for condemnation with a very fine-toothed comb, often resulting in the gavel falling on the side of the property owners over governments.

The bottom line for CRE developers

Following Kelo, many states re-examined their own eminent domain rules and regulations in an attempt to protect property owners from the government’s potential abuse of condemnation. In Florida, for example, then-Governor Jeb Bush signed off on legislation that gave the state an “A” rating for protecting the rights of Florida property owners.

For developers looking to work with local governments that utilize eminent domain, it’s imperative to know the regulations in a specific state and to ensure that “public good” or “public purpose” is firmly established. Otherwise, the project can quickly become bogged down in lawsuits.

The bottom line for CRE investors

The impact of eminent domain on developers is only one side of the issue. The other side affects anyone who is looking to invest in commercial properties.

The risk of eminent domain must be incorporated into an investor’s due diligence checklist. Very often, this aspect is forgotten, and the consequence is a surprise that reveals itself after the deal is done. For example, consider a buyer who failed to check for any projected public projects in the area of his or her newly purchased strip mall. After the sale is complete and tenants move in, a road-widening project results in the loss of prime parking spaces. There is no “buyer beware” clause.

It’s essential for anyone—developers, investors, and sellers—to work with professionals who are knowledgeable in the processes of eminent domain and condemnation—and the due diligence required to mitigate these risks.

To learn more about what Morris Southeast Group can do for you, call us at 954.474.1776. You can also reach Ken Morris directly at 954.240.4400 or via email at


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