Issue of the Week

Condemning (For) Private Businesses

by Alex Halperin

4 March 02

Sales are strong at Minic Custom Woodwork in East Harlem, but co-owner Bill Minic is afraid that he will soon have to shut down the furniture factory that has been in his family for 70 years -- put out of business not by the recession or by competition, but by a government agency.

The Empire State Development Corporation, a state agency that promotes businesses in New York, has plans to condemn Minic Custom Woodwork and 11 other businesses near it, buy the land from them at a court-determined price, and resell it to a private developer to build a Home Depot, the giant home repair chain.

It may come as a surprise that the government could force one private business to make way for another private business. But private businesses throughout the city, from Home Depot to the New York Stock Exchange to the New York Times -- and, most bizarrely, the Lower East Side Tenement Museum -- are attempting to take advantage of a relatively new use of the age-old power of government to condemn private property.

"What has happened in the last ten or twenty years has been a complete corruption," says Michael Rikon, a lawyer whose firm represents Minic and about 350 other businesses on some of the at least 50 sites throughout the city that are in danger of being condemned. "Now you find property taken to give to developers."

But public officials, including Mayor Michael Bloomberg and U.S. Senator Charles Schumer, endorse these kinds of condemnations as being good for the city as a whole, and see them as bringing economic activity and jobs to areas of the city that are greatly in need of them. In his State of the City address, Bloomberg announced his support for such varied projects as the rezoning of the West Side for greater commercial use, the expansion of the Jacob Javits Convention Center, and an all-out effort to get the 2012 Olympics -- all of which are likely to involve what long has been called the power of eminent domain.

A NEW DIRECTION FOR 'EMINENT DOMAIN'

The concept of eminent domain, which has existed for centuries, protects private property owners from having their property taken by the government without being paid for it. At the birth of the American republic, the founders assumed that a growing nation would occasionally need to confiscate private property to build public works projects. In the last phrase of the Fifth Amendment to the U.S. Constitution, the right to "just compensation" for the owners is guaranteed if "private property be taken for public use."

But what is public use? Publicly owned schools and highways are clearly for public use, and so too, many people argue, are quasi-public cultural facilities and sports arenas. The current debate is over whether an effort to revitalize an impoverished neighborhood justifies the condemnation of property to benefit privately owned businesses.

Even Robert Moses, the New York "master builder" best known for his extensive use of the power of eminent domain, did not do this. During a career in public office spanning half a century, Moses condemned hundreds of thousands of homes and many businesses in order to construct such massive public works projects as the Triborough Bridge, the West Side Highway, Shea Stadium and Lincoln Center. Moses did not see the destruction of whole neighborhoods as a necessary evil for the greater good of what replaced them. Rather, he saw the demolition itself as beneficial to the public. It was "genuine slum clearance," the removal of "blighted" neighborhoods. He called it urban renewal, and for many years he was applauded for it.

But when he tried to build a parking lot in Central Park for the restaurant "Tavern on the Green," he was defeated.

Moses is now often faulted for his methods, and the mass condemnation of entire neighborhoods is no longer politically possible. "Urban renewal" has given way to "community development," (or "economic development"), and condemnation now focuses on small areas of a neighborhood that hope to bring in new businesses, areas frequently officially deemed Empowerment Zones.

PUBLIC USE OR PRIVATE GAIN?

The Minic furniture factory is in an Empowerment Zone, an area where the federal government encourages companies to relocate by offering them tax breaks and other incentives.

That is what drew the developer Blumenfeld Development Group to propose that the first Home Depot in Manhattan be built in East Harlem. A Home Depot spokesman estimated the store would employ at least 400 people, the majority from the neighborhood. In addition, because Manhattan residents now must shop at outer borough and suburban Home Depots, the spokesman said, the store would "unquestionably" be of public use.

"The fact that there might be some incidental benefit to certain private individuals or private businesses, doesn't undermine the overriding public purpose that we would be seeking to accomplish," said Joe Petillo, a lawyer for the Empire State Development Corporation. He and other supporters of the private condemnations point to those that sped West Harlem's recent renewal.

But Rikon, the lawyer for several of the businesses being condemned in East Harlem, points out that once the Empire State Development Corporation sells the developer the seven-acre plot, no law requires him to build the promised store. Minic himself says that the existing businesses already employ 144 people full time, people whose jobs would be in jeopardy, and that many of the jobs at Home Depot might not be full-time, nor as well-paying.

Rikon, who has published extensively on the need to reform condemnation law, said that this new business-oriented approach to condemnations dates back to 1981 and the legal case Poletown Neighborhood Council v. City of Detroit. The Michigan Supreme Court ruled that a community could be condemned to allow General Motors to build a factory, accepting the argument that it would revitalize the community. "Because of that case, cases hereafter have approved almost anything that has come along," Rikon said.

He also referred to the landmark 1954 United States Supreme Court case Berman v. Parker, when the court said slums could be condemned for the public use of beautifying a city. The expanded definition of public use from these cases remains the most useful legal precedent for private developers who hope to acquire private property by condemnation.

A MUSEUM EXPANDED, A SLUM RESTORED

In the weirdest current condemnation case, the Lower East Side Tenement Museum has asked the Empire State Development Corporation to condemn the museum's next door neighbor. The museum wants to kick out the tenants, close down the Chinese restaurant on the first floor, then, in a unique reversal of urban renewal, gut the modern insides of the building and turn it back into a tenement. Empire State has initiated proceedings, but has not yet made a final decision whether to condemn the property.

The museum says that its building at 97 Orchard is so crowded every week, that it must turn away visitors, and needs 99 Orchard to expand. Ruth J. Abram, the museum's president, says the expansion into the sister building will create jobs, raise tax revenue, help neighboring businesses and "preserve the historic flavor of Orchard Street and the Lower East Side Historic District."

Lou Holtzman lives with his wife in one of the 15 apartments at 99 Orchard Street (which like the building housing the museum was built in 1863), and co-owns it with Peter Liang, the owner of the restaurant in the building, Congee Village. They have refused to sell to the museum.

The Lower East Side Business Association voted overwhelmingly against the condemnation, and articles in support of the owners' right to keep their property have appeared widely (Holtzman reprints them on his personal web site)

According to Petillo, if Empire State condemns 99 Orchard St., residents will receive a relocation package including free brokers, moving expenses and a stipend for their inconvenience. As a commercial tenant, Congee Village is not legally entitled to compensation, but, he added, "if prior projects of ours can be used as a guide, it is likely that some assistance would be offered."

HALLOWED INSTITUTIONS

Responding to threats from the New York Stock Exchange to move to New Jersey, Governor George Pataki signed a letter of intent in December 2000 to build the exchange a new trading floor on Wall and Broad Sts. In addition to the much-publicized subsidies for the exchange that could exceed a billion dollars, the largest in state history, the project would also require the condemnation of several large existing properties.

Some argue the condemnations should not benefit such a big business as the stock exchange. "But the New York State Legislature said unequivocally that it's a public purpose," Petillo said, "that it's an important thing for all New Yorkers to make sure the stock exchange stays in New York and stays downtown."

The state also supports the New York Times keeping its offices near Times Square, and will give the newspaper $29 million in tax breaks for building its new headquarters there. At the request of the New York Times and developer Forest City Ratner, Empire State has initiated condemnation proceedings against ten businesses on the proposed site for the newspaper's new headquarters, the block between Seventh and Eighth Avenues and 40th and 41st Streets.

In order to condemn the land, Empire State invoked the 42nd Street Project, a plan from 1984 designed to rid Times Square of "urban blight." Though office space around Times Square is now some of the most expensive in the city, the 42nd Street Project still applies, and the state agency says that the specific block in question is still "blighted, deteriorated, substandard, insanitary [sic] and underutilized."

Sidney Orbach, who owns a 16-story office building that has been condemned, disagrees. In 1984, "there was blight," he conceded. "But there certainly isn't anymore." His building has prestigious tenants including the fashion designer Donna Karan, and before condemnation proceedings began, it was fully occupied. (Since the condemnation, he complains, brokers have been wooing tenants from his building). Orbach believes the newspaper could build elsewhere. "Plenty of space is available on the free market," he said.

After Empire State initiated the condemnation, the Times' partnership made an offer to the property holders. Orbach said the offer equaled about "one- fifth" of the value, based on the sale of a nearby lot (the so-called Milstein property), and he and several other owners say they intend to sue to get just compensation for the value of the land, which they put at $260 million.

John Fisher, a resident of Hell's Kitchen and the founder of Tenant.net, the tenant advocacy web site, also opposes the Times' project. To him, it signals a new era of building on the West Side, which could result in more condemned apartments and increased rents. Empire State Development Corporation's treatment of the Times, he also charged, seems preferential, and "raises the question of journalistic independence."

Toby Usnik, a spokesman for the New York Times said the deal would "absolutely not" influence the newspaper's independence, and that "the incentives that the city has offered are consistent with those it has made to other corporations in similar situations."

THE FUTURE OF CONDEMNATION

Like Mayor Bloomberg, Senator Charles Schumer has advocated condemnations for strengthening business in the city. He assembled a task force called the Group of 35, dominated by businesspeople, whose goal is improving the city's technology industry. The group released a report last June calling for condemnation as one of the three pillars of improving business in the city (along with tax breaks and improved transportation). The report said that while condemnation can be "expensive and time consuming," it is more "predictable" than forcing companies to buy property on the open market.

Bloomberg has voiced support for the recommendations of the Group of 35, hoping they will revive the three areas the report suggests should be focused on, the West Side of Manhattan, Long Island City and Downtown Brooklyn, as condemnations have revived West Harlem and Times Square. Opponents of the strategy wonder whether the condemnations ultimately benefit the neighborhoods or just the businesses taking advantage of them. In either case, New York City is sure to see more properties like Minic Custom Woodwork being condemned. "Don't think it can't happen to you," Minic advises. "It has happened and is happening."

###

Read a letter to the editor about this article.

Visit the Issue of the Week archives.
Tell us what you think about this issue. Write a letter to the editor.