10/11/2005

Eminent Domain — Is It the Only Hope For Inner Cities? The Wall Street Journal, 10/5/05

By Ryan Chittum

[East St Louis IL] doesn't scream "build here" to most real-estate developers. One of the poorest urban areas in the U.S., its median household income is $21,324, and nearly 32% of families live below the poverty line, more than triple the national average.

Jim Koman looks at the numbers another way. He sees a city, like many other downtrodden places, with few quality stores to serve its residents. East St. Louis has just 3 square feet of retail space per person, compared with the national average of 20 square feet.

In 1999, after pharmacy chain Walgreen Co. came to him looking for retail space, Koman Properties Inc., of Clayton, Mo., built the city's first new shopping center in several decades. Now, amid street after street of trash-strewn lots and broken-down buildings, it is a commercial oasis stretching for several blocks, including a grocery-anchored strip mall with a beauty salon, a Foot Locker, an Auto Zone and other chains. About 95% of the shopping center's workers are from East St. Louis, bringing the city much-needed, if low-paying, jobs.

When the Walgreen's opened, then-President Clinton showed up to visit. The State Street Shopping Center "is night and day for these people that don't have anything," Mr. Koman says.

But to build in an urban area like East St. Louis, Mr. Koman must rely on eminent domain — the government's power to force a landowner to sell property at what is considered a fair price. The State Street project wouldn't have happened if the city hadn't used the threat of eminent domain to clear about 40 houses and a gas station, Mr. Koman says. Of those properties, only two owners held out for long periods, and one of those buildings was condemned and appropriated through eminent domain after the owner refused to settle.

In East St. Louis, developer Jim Koman faces opposition to his expansion plans from the owner of U.S. Nails, who refuses to give up a lease on a nearby property.

Such cases have received new attention following the Supreme Court decision in June upholding the use of eminent domain to seize property for private use. Opponents of the eminent-domain doctrine have pointed to high-profile cases such as arenas and other big urban-development projects as evidence of abuse. But situations such as Mr. Koman's are far more common and in some ways knottier.

Many builders say eminent domain is the only way to bring services and jobs to areas like East St. Louis. Mr. Koman says he wants to show a different side of the "big, bad developer." But to the people who are losing their homes and their businesses, Mr. Koman is exactly that.

He is currently involved in several disputes with property owners. Across the Mississippi River, on the north side of St. Louis, another struggling area, Mr. Koman plans to expand a shopping center he owns, with a regional urban-wear store, a fish-and-chicken restaurant and a men's hair salon committed to going in. But he is running into local opposition.

To get the land he needs, Mr. Koman wants to buy a trash-strewn lot and an old brick building that are located across the street. The building is owned by St. Louis Housing and Service Corp., a nonprofit group that bought it for $1 a few years back. "They have a business plan, and we have a business plan," says the group's chairwoman, Leeora Daniels, a 63-year-old retired schoolteacher. Mr. Koman's plan "is a strip mall. Our building has social programs along with storefronts to support what we're trying to do." The group plans to house day-care centers for children and adults among other social services, she says, adding that her group has hired a lawyer to fight the developer.

Mr. Koman says the roof is caving in and the building is a hazard. He contends there was no activity there until he came around looking to purchase it. The mayor's office agrees with him. "I think this would clearly qualify as blighted under pretty much anybody's definition," says Barbara Geisman, the mayor's executive director for development in St. Louis.

Next door, Mr. Koman is facing a fight over a postage-stamp-size vacant lot appraised at $7,000. The sale is being held up by one of six heirs to the property, who lives in Atlanta and wants $50,000 for his share alone. "It's all about greed," Mr. Koman says. "How much free money can I get from this developer?" The holdout didn't show up in court recently and couldn't be reached for comment.

Situations such as this, rather than those in which people are pushed out of their homes, make up a large percentage of cases in which St. Louis uses eminent domain, Ms. Geisman says. "There are always going be those poster children, but the reality is a whole lot more complicated than that. We can't let one person hold up something that the entire city wants and needs." It wouldn't be possible to do widespread redevelopment in an old, historic city like St. Louis if the Supreme Court hadn't upheld eminent-domain rules in its Kelo v. New London decision, Ms. Geisman adds.

Eminent-domain opponents, such as the Institute for Justice, the Washington nonprofit law firm that represented the homeowner[s] in the Kelo case, beg to differ. "The idea that private development in cities can't happen without eminent domain is crazy," says Dana Berliner, senior attorney at the institute. "Private development happens all the time without eminent domain. People buy the property: If it's difficult to buy the property, they work around that person or they buy another property."

Why get involved in messy development battles? Mr. Koman doesn't deny it is a way to make a good profit, although he declines to say how much money he has made in the East St. Louis development. His properties there are 100%-occupied, and he hasn't had a tenant go out of business since opening. "Please come invest in the inner city," he says. "We are making money in East St Louis."

Mr. Koman's background, however, lends ammunition to critics who say eminent domain often benefits the powerful at the expense of the less well-off. Mr. Koman's father, Bill, played pro football for the old St. Louis Cardinals in the 1950s and '60s and then went into development. Jim Koman and his brother followed their father into the business. Now, the brother has a separate company that builds offices, and Jim handles retail development. He currently has 18 shopping centers under construction within 180 miles of St. Louis. Six of them may require the use of eminent domain to get the necessary land, including a big cornfield in Troy, Ill, just outside St. Louis.

Mr. Koman isn't averse to using hardball tactics. He tells people who don't want to settle that he will take them to court, where they will get much less than what he is offering. As he drives through a trailer park he is currently trying to buy out, he mocks the people who fight his efforts. "Oh my God, you're ruining my life!" he quotes them as saying. "But half these people can't even find jobs or are alcoholics or whatever," he adds. "Most people are just ecstatic [with the buyouts]."

In East St. Louis, Mr. Koman wants to expand his shopping center but has run into opposition from the owner of a beauty salon who has refused to give up his lease on a neighboring property. Tony Ngo, who owns U.S. Nails, has strong feelings about eminent domain. "Eminent domain is a horrible law...I feel that it's a little bit worse than communism," he says. "The communists — you know they're going to come in and they're going to take. This is a business that I plan to grow."

He is negotiating with Mr. Koman, and the two sides appear to be close to a deal. "The question is, Is it faster for me to buy this guy off, or quicker to go to court and condemn it?" Mr. Koman says.


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