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Ruling Puts Development at Risk

Builders fear impact of a landmark decision on eminent domainMOUNT LAUREL – The New Jersey Supreme Court decision to expand local municipalities’ use of eminent domain will likely have negative repercussions for real estate investment in the state, say development experts.

On Dec. 7, the court voted 6-1 that the township of Mount Laurel had the right to condemn and seize the site of a planned residential project for open space acquisition. The court noted the town’s need to slow development and prevent added strain on its schools, roads and municipal services.

The developer, Medford-based MiPro Homes LLC, had received final approval in 2002 from the Mount Laurel planning board to build 23 single-family homes on a 16.3-acre tract zoned for residential use. But 22 days later the township seized the property through eminent domain to preserve it for open space.

Mount Laurel’s high court victory will provide another tool that towns can use to restrict sprawl, says William Dressel, executive director of the New Jersey State League of Municipalities. The Trenton-based advocacy group for local governments filed a brief in support of Mount Laurel in the court case.

According to Dressel, towns face overdevelopment, traffic congestion and rising property taxes to pay for public services.

The ruling invalidates planning and regulatory policies that developers have known them, says Jeffrey Baron, attorney for MiPro Homes, which may appeal to the U.S. Supreme Court. “The very unsettling part of this case is that there are no rules anymore to follow,” says Baron.

This is because a town’s zoning and master plan no longer serve as guidelines for what a developer can or cannot build, says Patrick O’Keefe, CEO of the New Jersey Builders Association in Robbinsville. He says MiPro complied with the residential zoning of the property, but Mount Laurel seized the land anyway.

Investors “cannot rely on the adopted plan of localities in making their decisions, which means that they as business people cannot make prudent business decisions,” says O’Keefe. Under the MiPro decision, the private sector “is exposed to infinite risk when it chooses to invest in land in New Jersey.

“The rational investor, having numerous opportunities, not only in real estate development, but the stock market, et cetera, and having geographically the rest of the world, is hard-pressed to figure out why they should even look at New Jersey,” he adds.

The landmark decision comes at a time when local companies’ view of the New Jersey business climate has hit a low point. A New Jersey Business & Industry Association (NJBIA) survey, released last month, found that 80 percent of the 1,700 respondents viewed the state’s attitude toward business as worse than in other states. That was up from 69 percent last year and marked the worst rating the state received in the survey’s 22-year history.

The added risk and uncertainty that the ruling presents for developers only worsens the state’s perceived hostility toward real estate investment, says Dianne Brake, president of the Regional Planning Partnership, a statewide planning organization in Trenton.

“New Jersey already has a bad reputation in terms of regulation and making it difficult to build development,” says Brake. “This would add to that unpredictability and the undesirability of investing.”

Moreover, “New Jersey became in the last 20 years the fifth-largest office market in the country,” she says. “We’ve added a huge number of jobs … [but] we didn’t provide enough housing where we’ve provided jobs.”

Ironically, limiting residential development to reduce congestion has put more cars on the road, she says, since the lack of housing near areas of employment has forced people to drive from other places to get to those jobs.

The Supreme Court ruling is the latest in a string of legislative and regulatory changes that have tightened the restrictions for development in the state, says Thomas J. Hall, chair of the development law group at Sills Cummis Epstein & Gross, a Newark-based law firm.

For example, he notes that last month the New Jersey Highlands Council released the Highlands Draft Regional Master Plan, which would put severe limits for development on 400,000 acres of land in the northwestern part of the state. This would be in addition to 400,000 acres in the Highlands that have already been set aside for preservation.

Some municipal advocates say the ruling will have little impact on the decision-making of local developers, who regularly deal with a multitude of risks during the development process. “Development applications are fraught with uncertainties,” says Stuart Koenig, senior assistant counsel to the New Jersey State League of Municipalities. “Developers take that risk, that’s why the reward in most of these cases is so great to them.”

But the state must not create too many hurdles for investors, says David Brogan, vice president of environmental policy for NJBIA. “Anytime you’re taking away a level of certainty, businesses take a step back and say, ‘What’s our reason for coming here?’” says Brogan.

Attorney Hall says many New Jersey residents are leaving the state for housing opportunities elsewhere. “We joke that the fastest growing county in New Jersey is Pennsylvania, because we’re just exporting a lot of our housing growth across the river,” he says.

Brake calls this bad for the Garden State. “If the work force is now in Pennsylvania,” she says, “the jobs are going to move to Pennsylvania.”

E-mail elee@njbiz.com

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