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Eminent Domain Explained for Developers with Jerry Pesick - TLP170 · The Land Development Podcast with Ryan Glick

• 0:00
  SPEAKER_02: In Michigan, I can assure you it's tough luck, unfortunately.
• 0:03
  SPEAKER_02: There's a rule in Michigan, and it's it's I think it's been adopted in other states.
• 0:07
  SPEAKER_02: It's a general effects rule.
• 0:08
  SPEAKER_02: So if there's a project happening in your area and there's no physical taking from your property, even though you might be detrimentally impacted by what's happening down the road, it's considered a general effect that everybody in the neighborhood is suffering.
• 0:25
  SPEAKER_02: And as a matter of law, you can't recover from that.
• 0:42
  SPEAKER_00: Hey, what's going on, everybody?
• 0:44
  SPEAKER_00: Welcome back to the Land Development Podcast.
• 0:46
  SPEAKER_00: I am your host, Ryan Glick.
• 0:48
  SPEAKER_00: I'm excited today to be joined by Jerry Pesick.
• 0:51
  SPEAKER_00: Jerry's a shareholder and attorney at Williams Williams Ratner and Plunkett based out of Michigan.
• 0:56
  SPEAKER_00: Jerry, thanks for joining me.
• 0:57
  SPEAKER_00: Thank you for having me, Ryan.
• 0:59
  SPEAKER_00: Well, we've got a couple different topics that we're going to be getting into today that I'm really interested about.
• 1:04
  SPEAKER_00: I think one of them that we're going to focus more on is the topic of eminent domain, and the other one being property tax appeals, which I know as we had talked before we press record here, that it's maybe a little more localized in various jurisdictions and everything.
• 1:18
  SPEAKER_00: But before we get into some details on those topics, I'd like to first get an understanding on your background and why you chose to get into and specialize in these particular areas in law.
• 1:32
  SPEAKER_02: I've been practicing eminent domain law in Michigan, uh, going back to when I first got out of law school, without getting into too much detail, that's over 40 years ago.
• 1:43
  SPEAKER_02: I got into it for a couple of reasons.
• 1:46
  SPEAKER_02: Um, number one, the guy the the firm that I first started working for, uh, there were two gentlemen there that specialized in eminent domain.
• 1:54
  SPEAKER_02: And um they uh viewed me as a hire who would be, you know, someone working with them directly.
• 2:01
  SPEAKER_02: Um so I started right out of the box out of law school working in eminent domain and have continued working at it as uh as a as a specialty since that time.
• 2:10
  SPEAKER_02: The tax appeal stuff sort of came along.
• 2:13
  SPEAKER_02: Oh, probably I started doing that about 10 years after that.
• 2:16
  SPEAKER_02: Um, the common thread is that in large part, both areas have a lot to do with property valuation.
• 2:24
  SPEAKER_02: And I'm basically a property valuation litigator.
• 2:27
  SPEAKER_02: Uh, so that's kind of how that's the relationship between the two, and it's kind of how I got started.
• 2:33
  SPEAKER_02: The little bit of a backstory to all that, though, is I was interested in eminent domain coming out of law school uh because my father had a business that uh was subject to eminent domain when I was a kid uh and had to relocate that business.
• 2:46
  SPEAKER_02: And I always kind of remembered that and thought it was interesting.
• 2:49
  SPEAKER_02: And so when I connected with uh the firm that specialized in that, it was kind of a good fit for me.
• 2:55
  SPEAKER_00: Yeah, that's really interesting.
• 2:57
  SPEAKER_00: That uh yeah, that childhood experience is what, you know, you hung on to and ended up leading you into that uh particular field.
• 3:04
  SPEAKER_00: I was gonna ask about, you know, you had mentioned being, you know, working over 40 years on on eminent domain work.
• 3:12
  SPEAKER_00: Has there been anything, you know, over those years, have there been any, I guess what are the major things that have changed over that time period?
• 3:20
  SPEAKER_00: Have there been a lot of changes with it?
• 3:22
  SPEAKER_00: Well, uh uh the answer is yes.
• 3:25
  SPEAKER_02: I mean, there's there's two components to an eminent domain case.
• 3:28
  SPEAKER_02: There's the legal component and there's the compensation slash damage component.
• 3:34
  SPEAKER_02: The legal component is um, in order to have an eminent domain case, a governmental agency uh and utilities for that matter, who have the power of eminent domain.
• 3:43
  SPEAKER_02: We can talk about that a little bit in a moment.
• 3:46
  SPEAKER_02: But um, they have to demonstrate that there's both a public need or necessity for the project and that the pro and that the property that they're taking is actually going to be put to a public use.
• 3:59
  SPEAKER_02: So that's the first part of every case.
• 4:01
  SPEAKER_02: There is a strong presumption in the law that when a can that a condemning agency's determination of public necessity and public use is supportable.
• 4:13
  SPEAKER_02: And the burden is on in a typical eminent domain case, the burden has always been on the property owner to demonstrate that there is neither that there is neither of those components available.
• 4:25
  SPEAKER_02: And you have to prove in those, traditionally you'd have to prove in those cases that there's either uh fraud, an error of law, or abuse of discretion by on the on the part of the condemning authority in order to file the case.
• 4:38
  SPEAKER_02: There are very, very few legal challenges to those types of takings.
• 4:46
  SPEAKER_02: The very broad discretion is granted to the condemning authorities to make the determination as to what they need for their projects and whether or not it's being put to a public use.
• 4:58
  SPEAKER_02: A big change came along shortly after I started in practice, and it was in Michigan, and it had and it had a ripple effect across the country.
• 5:08
  SPEAKER_02: So typically public use is always considered to be something something where the end user was the public.
• 5:16
  SPEAKER_02: A city hall, a roadway, uh a drain, that sort of thing.
• 5:21
  SPEAKER_02: So in 1980, in Michigan, there was a new statute adopted that basically provided for the private user to be the end user in an eminent domain case if there were public benefits involved.
• 5:39
  SPEAKER_02: It was not so coincidental when that amend when that uh that new statute in Michigan was adopted, and it's called the Uniform Condemnation Procedures Act, that right around the corner, General Motors was trying to assemble a very large tract of land uh to build a new uh car plant.
• 5:58
  SPEAKER_02: So they um they adopted uh a plan um whereby they would seek to acquire, they would, they would request that the city of Detroit and a adjacent suburb called Hampton would basically acquire a large tract of land, hundreds of parcels, combination of residences and businesses, and assemble that land for General Motors, turn it over to General Motors, and the quid fro quo for that is that General Motors would create this additional property tax base for the city, as well as provide, you know, hundreds to thousands of jobs associated with that plant.
• 6:43
  SPEAKER_02: There was a legal challenge to that brought because it was a concept that had never been used before, where you had the end user being a private entity here at General Motors.
• 6:53
  SPEAKER_02: And uh it ultimately went to the Michigan Supreme Court.
• 6:59
  SPEAKER_02: Uh, the name of the case was Pole Town Neighborhood Council.
• 7:02
  SPEAKER_02: Poletown comes from Hamtramic.
• 7:04
  SPEAKER_02: It's been a Polish enclave since it, you know, for decades, for centuries.
• 7:10
  SPEAKER_02: In that case, ultimately the Michigan Supreme Court supported the concept that it was a sufficient public benefit to have the uh as long as the end user was providing this economic development, jobs, tax base, et cetera.
• 7:28
  SPEAKER_02: And the plant was built, and there were that it was right when I was getting started, there were hundreds of condemnation cases, really thousands.
• 7:37
  SPEAKER_02: And so I really got my feet wet in the fire at that time because I had just started at my firm that specialized in it, and we were a small group and we had a lot of cases to deal with.
• 7:49
  SPEAKER_02: So that had been the basic standard over the years.
• 7:52
  SPEAKER_02: There was a lot of get a lot of litigation following Pole Town as to whether something, you know, as to whether something really was providing a public benefit, because a lot of communities were trying to use that in order to assemble land for nothing as big as necessarily an auto plant, um, but all kinds of private developments.
• 8:13
  SPEAKER_02: Fast forward.
• 8:15
  SPEAKER_02: In the early 2000s, Wayne County, which is uh the county where the city of Detroit is located, largest county in the state of Michigan, uh sought to put together a development near the Detroit-Wayne County Metropolitan Airport, largest airport in the state, um, which was going to they called it, they called it a Pinnacle Aero Park.
• 8:39
  SPEAKER_02: And the aero park was going to be an assemblage of a lot of land, again, like in Pole Town.
• 8:44
  SPEAKER_02: And the plan was to build hotels, uh, office centers, uh, industrial type facilities.
• 8:53
  SPEAKER_02: And this land would also be, once assembled by the county, turned over to private developers.
• 8:58
  SPEAKER_02: And a lot of it was farmland, candidly.
• 9:01
  SPEAKER_02: Um, it wasn't really put to a particularly intense use at the time.
• 9:06
  SPEAKER_02: One of the property owners challenged the legality of the taking, but effectively challenged uh the Pole Town decision.
• 9:14
  SPEAKER_02: The Michigan Supreme Court basically reversed Pole Town at that point in time, uh, basically eliminated the concept of economic development and the type of benefits I just talked about being a basis for a public use and a public purpose.
• 9:33
  SPEAKER_02: Uh, and that project never happened.
• 9:35
  SPEAKER_02: Uh, and it went up to the Michigan Supreme Court who expressly did a reversal of Pole Town.
• 9:41
  SPEAKER_02: These aren't clear-cut lines in either case.
• 9:44
  SPEAKER_02: So we continue to have litigation as to what falls into what.
• 9:48
  SPEAKER_02: It became a little bit more interesting.
• 9:51
  SPEAKER_02: A lot of states had developed the pole town concept over the years.
• 9:55
  SPEAKER_02: A lot of states hadn't.
• 9:58
  SPEAKER_02: So there was a federal case.
• 10:00
  SPEAKER_02: Uh I take it back, a case in in 2005 that came out of Connecticut called Kelo versus New London.
• 10:10
  SPEAKER_02: And that again, that was a a private a private development with the government, local governmental agency trying to assemble land for the developer.
• 10:20
  SPEAKER_02: It ultimately, and at the local level, the development had been approved, and then ultimately went to the U.S.
• 10:28
  SPEAKER_02: Supreme Court.
• 10:29
  SPEAKER_02: And the s U.S.
• 10:31
  SPEAKER_02: Supreme Court basically confirmed in that case that the Pole Town concept was acceptable, that the project could go forward with the private uh user being the end being the end user and based upon benefits such as tax base, employment, that sort of thing.
• 10:53
  SPEAKER_02: What was also particularly interesting about that case is they create an exception.
• 10:59
  SPEAKER_02: They said, this is what we think is the situ this is what we, the U.S.
• 11:02
  SPEAKER_02: Supreme Court, think should be the standard, but we'll leave it up to the individual individual states to decide whether they want to use this standard in their in their states.
• 11:13
  SPEAKER_02: And they specifically called out the key the uh Pinnacle Aero Park case and said, look, by way of example, Michigan's doing this and that case.
• 11:22
  SPEAKER_02: That's okay.
• 11:23
  SPEAKER_02: So basically, although you have a standard from the U.S.
• 11:27
  SPEAKER_02: Supreme Court, the way the way the opinion was written, it's not really a national standard per se, because pretty much opens the door to each state to do what they want to do with this issue.
• 11:38
  SPEAKER_02: So long answer to your question is there have been change, but those have been the most significant changes in eminent domain litigation that I can think of during my career.
• 11:49
  SPEAKER_00: No, that's good.
• 11:50
  SPEAKER_00: That really lays the table for what we're getting in here today and the fact that we have people listening in from around the country.
• 11:56
  SPEAKER_00: The first thing they need to understand is that it's not necessarily going to be exactly the same state to state because it's based upon the interpretation of their own state and based upon what you just talked about there.
• 12:07
  SPEAKER_00: For yeah, so for developers who may, you know, may be never dealt with eminent domain before, but maybe they get a letter that uh is sent to them telling them about part of their property that's going to be taken using eminent domain.
• 12:25
  SPEAKER_00: What do developers usually do wrong when they get that letter?
• 12:28
  SPEAKER_00: Or like what should they do in those situations?
• 12:30
  SPEAKER_00: Well, they should, what they should not do is sign off until they talk to somebody like me.
• 12:34
  SPEAKER_02: Let's start with that.
• 12:35
  SPEAKER_02: So, you know, typically we get a lot of calls from developers, obviously, who are, you know, get letters regarding roadway widenings, utility installations, and you know, sometimes as well, uh a need to take their entire property for a public project.
• 12:53
  SPEAKER_02: The first thing I say to them is obviously, I want to see whatever has been sent to you by the local government agency.
• 13:00
  SPEAKER_02: Typically in Michigan, I can't speak for other states on this issue, they're obligated to make what's referred to as a good faith written offer, which I think it's a standard in most states.
• 13:14
  SPEAKER_02: But what they're obligated to provide to you in conjunction with the offer may vary from state to state.
• 13:19
  SPEAKER_02: In Michigan, in addition to the offer, they're obligated to give you an opportunity to review their appraisal, which is the basis for the compensation that they're offering.
• 13:28
  SPEAKER_02: So I always want to see a depiction of the taking.
• 13:31
  SPEAKER_02: I want to see the offer, I want to see the appraisal that it's based upon, so that I can evaluate it both from the standpoint, is this a project that is a public purpose?
• 13:42
  SPEAKER_02: We look at that first.
• 13:44
  SPEAKER_02: I would say 90 plus percent of the time it is, um, and that there's no legal challenge that we would recommend.
• 13:53
  SPEAKER_02: And then we're looking at it from the perspective of damages, and I want to try, you know, I read a lot of appraisals because, as I said earlier, I do, you know, pretty much exclusively valuation litigation.
• 14:05
  SPEAKER_02: And so I try and get a feel for whether or not the offer, you know, is satisfactory, whether it identifies all the elements of compensation that need to be considered.
• 14:14
  SPEAKER_02: And then I'll review all those things once I have a chance to look at it with the property owner and make recommendations to them as to how I would think they should proceed.
• 14:24
  SPEAKER_02: Candidly, it's very few cases where I end up recommending that they take the offer.
• 14:29
  SPEAKER_00: It usually doesn't work.
• 14:31
  SPEAKER_00: Well, I was gonna add, that was what I was gonna ask is around the offer.
• 14:34
  SPEAKER_00: So most offers that come in are not they're they're not the best offer that they should be getting in those situations.
• 14:40
  SPEAKER_02: The short answer is yes.
• 14:42
  SPEAKER_02: I mean, a good example is use of the offers only deal with land value.
• 14:48
  SPEAKER_02: And there's a couple of things that have to be considered.
• 14:51
  SPEAKER_02: Let's so there's two types of condemnation cases, total taking and partial taking.
• 14:56
  SPEAKER_02: Total taking is pretty straightforward because you're valuing the whole property as it is.
• 15:01
  SPEAKER_02: Okay.
• 15:02
  SPEAKER_02: Partial taking is much more complicated because you're not just valuing the portion of the property that's being taken, you also have to make a determination and potentially value the impact on that, on the remaining property that the taking is having.
• 15:18
  SPEAKER_02: So they call it that a it's generally called a before and after analysis.
• 15:22
  SPEAKER_02: What's the property worth before it's taken?
• 15:25
  SPEAKER_02: What's what's what's what's left over worth after the taking?
• 15:29
  SPEAKER_02: And so it's not necessarily just a prorata of what they're offering for if it's a roadway for the frontage, that sort of thing.
• 15:38
  SPEAKER_02: Great example is if you have a retail center and the taking has taken a significant portion of your parking, that has a much more detrimental effect on what's remaining afterwards, as opposed to if this, you know, they were just lopping off a little bit of your greenbelt, let's say, or something like that.
• 15:57
  SPEAKER_02: So those are the things that we look at, we try and analyze.
• 16:01
  SPEAKER_02: Typically, and there's other types of things that have to be considered.
• 16:04
  SPEAKER_02: Typically, as I think I just mentioned, the offer only deals with the land itself.
• 16:09
  SPEAKER_02: Other things that a business owner, particularly operating business owner, has to consider is am I having how is this taking in the related construction potentially going to interrupt my business?
• 16:21
  SPEAKER_02: And there's something called business interruption damages, which we almost very, very rarely see an offer on.
• 16:29
  SPEAKER_02: So you have to notify the condemning agency that other components like that are things that you're going to make a claim for going forward and you have to have that evaluated as well.
• 16:39
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• 17:32
  SPEAKER_00: All right, let's get back to the show.
• 17:35
  SPEAKER_00: So one one thing I noticed when I was doing a little prep work for our conversation today was the mention of roundabouts as well.
• 17:43
  SPEAKER_00: And we've never talked about roundabouts before on the show at all.
• 17:46
  SPEAKER_00: I don't remember anybody ever talking about that, but I know where I live, I see roundabouts.
• 17:51
  SPEAKER_00: I mean, roundabouts have kind of popped up everywhere.
• 17:53
  SPEAKER_00: But there was a mention about how there's consequences to roundabouts popping up near, you know, commercial properties that can have an impact on that.
• 18:03
  SPEAKER_00: Could you talk about that a little bit?
• 18:04
  SPEAKER_00: That that's kind of interesting to me.
• 18:05
  SPEAKER_02: You know, so the last several years, I would say 10 or 15, maybe 10 years.
• 18:12
  SPEAKER_02: Our state and I think states all over the country have gone roundabout crazy.
• 18:16
  SPEAKER_02: My understanding is I can't give you 100% verification on this, that there's a group in DC where a lot of the road funding comes from that are like roundabout crazy.
• 18:27
  SPEAKER_02: And the story is that that funding for new roadway construction is often tied to implementing roundabouts.
• 18:36
  SPEAKER_02: The supposed reason, and there's probably some merit to it, is they're uh they're safer and more and supposedly more efficient than conventional uh signalized intersections.
• 18:47
  SPEAKER_02: I could debate that with you for a long time on both issues.
• 18:50
  SPEAKER_02: In some instances it is.
• 18:51
  SPEAKER_02: I think there's a lot of instances when you look at what a roundabout's doing that it's detrimental.
• 18:57
  SPEAKER_02: Because by way of example, they can affect, they can affect the access to your property, depending where the access is located.
• 19:05
  SPEAKER_02: They can result in in elimination of parking, that sort of thing that we just talked about, in a more in a more subtle way, harder to sort of like quantify.
• 19:17
  SPEAKER_02: Uh I've had a lot of retailers say to me, we don't, you know, the idea is people aren't stopped at a signalized intersection, the traffic continues to flow.
• 19:27
  SPEAKER_02: It doesn't exactly work that way, but that's the concept.
• 19:30
  SPEAKER_02: And a lot of retailers have said to me, this is bad for my business because people are driving by and they don't have an opportunity to stop and see that I'm there.
• 19:37
  SPEAKER_02: So from a point of purchase standpoint type of thing, a lot of retailers have told me that it's a real negative for their businesses.
• 19:46
  SPEAKER_02: But we've dealt with a lot of them here in Michigan, and I suspect we're going to be dealing with a lot of them in the future as a, you know, as other states are across the country.
• 19:54
  SPEAKER_00: Does that fit into our conversation here at all, as far as like if if you own a property and a roundabout is being put in off of your property, not necessarily on your property that you own, is it just tough luck?
• 20:06
  SPEAKER_00: I mean, it's it's being put there and there's nothing you can do about it?
• 20:09
  SPEAKER_02: It's in in Michigan, I can assure you it's tough luck, unfortunately.
• 20:13
  SPEAKER_02: Um, there's a rule in Michigan, and it's it's I think it's been adopted in other states called general, it's it's a general effects rule.
• 20:21
  SPEAKER_02: So if there's a project happening in your area and there's no physical taking from your property, even though you might be detrimentally impacted by what's happening down the road, it's considered a general effect that everybody in the neighborhood is suffering.
• 20:39
  SPEAKER_02: And as a matter of law, you can't recover from that.
• 20:42
  SPEAKER_02: I can tell you that in many cases we have litigated what is a general effect and what is an effect more specific to your property, let's put it that way.
• 20:53
  SPEAKER_02: So, but that's the general effect rule is in play.
• 20:57
  SPEAKER_02: And if if you will, if you if you have that situation, and I say there's no physical taking from your property, you will not be getting an offer from the condemning authority who's building that project.
• 21:08
  SPEAKER_00: So basically, in order to have any type of justifiable claim of like damage to your business or anything like that, there would have to be a, you know, some sort of public roadway project that is like it's actually taking from your property to a certain uh extent.
• 21:26
  SPEAKER_00: Yeah, with a few exceptions.
• 21:27
  SPEAKER_02: By way of example, if they're if the project is re although they're not taking your property, effectively closes your access, that's a problem.
• 21:35
  SPEAKER_02: That's something that's compensable.
• 21:38
  SPEAKER_02: But yeah, like a general effect by way of example is if you're on a highway and the governmental agency builds a freeway within the right-of-way of that highway, and there's no, there's there's no access point off the freeway to you.
• 21:54
  SPEAKER_02: People have to go on what we call a circuitous route to get to your property.
• 21:58
  SPEAKER_02: Not compensable, typically.
• 22:00
  SPEAKER_02: Typically.
• 22:00
  SPEAKER_02: They have, you know, because they haven't taken your property to build that freeway in the middle of the right of way.
• 22:06
  SPEAKER_02: So there's a lot of complicated rules.
• 22:09
  SPEAKER_00: Yeah.
• 22:09
  SPEAKER_00: Well, I was thinking about also you a lot of times you'll see construction zones, you know, where they're doing road improvement and it's taking up a major section of, say, some strip malls and things like that.
• 22:18
  SPEAKER_00: And the only way to get to them is you do have to take a weird route to get back over to those businesses.
• 22:24
  SPEAKER_00: And I'm sure when that happens, they lose quite a bit of business until that access is opened back up.
• 22:29
  SPEAKER_00: But again, those are situations where there's no claims because they're not taking their property.
• 22:34
  SPEAKER_00: It's just uh it's just tough luck, basically.
• 22:36
  SPEAKER_02: Yeah.
• 22:36
  SPEAKER_02: I mean, there may be ex some exceptions in a few states, but in large part that's generally how it works.
• 22:41
  SPEAKER_02: Yeah.
• 22:42
  SPEAKER_02: Remember the pe remember the people who make the rules are people, you know, are legislators that work in government.
• 22:47
  SPEAKER_00: So Yeah.
• 22:48
  SPEAKER_00: Yeah.
• 22:49
  SPEAKER_00: Good point.
• 22:50
  SPEAKER_00: Um on the eminent domain domain side, one one thing that was brought up, like I had mentioned on a prior episode, was a developer who ended up making use of eminent domain.
• 23:03
  SPEAKER_00: Like they almost partnered, I feel like, with the city, probably in a similar situation like you're talking about.
• 23:08
  SPEAKER_00: Are there ever situations where you think it makes sense for a developer to do that?
• 23:15
  SPEAKER_00: Or is are you kind of on the flip side of that where you're more litigating against eminent domain, not necessarily litigating to support it?
• 23:22
  SPEAKER_02: Well, I mean, my practice is primarily representing private property owners, developers, um, other businesses.
• 23:29
  SPEAKER_02: In Michigan, in theory, that is not allowed.
• 23:34
  SPEAKER_02: But, you know, there's been a few cases since the pinnacle case that have been sort of questionable in my mind.
• 23:42
  SPEAKER_02: Uh, situations where a developer is building uh a new development, but it doesn't have a roadway to that development.
• 23:50
  SPEAKER_02: Um so along comes a governmental agency effectively working on behalf of the private property owner, this condemning property for a roadway that only leads to one place, that new development.
• 24:04
  SPEAKER_02: Uh we had a case several years ago where um we challenged that specific scenario because we basically said, hey, they're taking our property to build a driveway to this private development as a practical matter.
• 24:17
  SPEAKER_02: We were successful at the trial court, we were successful at the Michigan Court of Appeals, and to our surprise, the Michigan Supreme Court overruled us and basically said that's okay because, you know, the public has to get there, so to speak.
• 24:32
  SPEAKER_02: So there is a public benefit.
• 24:34
  SPEAKER_02: I know, a little shaky.
• 24:35
  SPEAKER_02: But so we live with that, and we've, you know, and we've litigated that in the we've litigated that issue under other circumstances.
• 24:42
  SPEAKER_02: It comes into play sometimes with like utilities.
• 24:44
  SPEAKER_02: Utilities are taking your property to uh, you know, an agency is taking your property, you know, to build whether it's a water line or a sewer line or whatever, or electrical, to get to a private development.
• 24:57
  SPEAKER_02: And that seems to be okay as well because in the big picture of things, I guess the courts believe that there is a public benefit there.
• 25:05
  SPEAKER_00: So you know, it's it's funny.
• 25:07
  SPEAKER_00: I was having a conversation the other day with my uh 13-year-old, and we were talking about we were talking about property, and we were talking the the conversation, I don't even know how it came up, but we did we talked about eminent domain.
• 25:18
  SPEAKER_00: And it got to the point where he now has this mindset of like, well, you don't really ever own your property then, do you?
• 25:24
  SPEAKER_00: And it's like, well, that's that's uh a fair point and a fair, fair uh, I guess fair assertion that you made there.
• 25:30
  SPEAKER_02: So I mean you everybody who owns property, it's subject to eminent domain.
• 25:35
  SPEAKER_02: I mean, uh um it's an inherent power of governmental agencies, both federal and state.
• 25:41
  SPEAKER_02: So yeah, arguably it is.
• 25:43
  SPEAKER_02: I mean, I I could you know there's certain places where they could, you know, probably pretty quickly tell you nobody's ever gonna condemn that.
• 25:50
  SPEAKER_00: Right.
• 25:50
  SPEAKER_02: But uh yeah, he's your he's very intuitive, smart young man.
• 25:54
  SPEAKER_02: We may have a job for him ten years from now.
• 25:56
  SPEAKER_00: Yeah, yeah, there you go.
• 25:58
  SPEAKER_00: Well, I I want to shift into the property tax side.
• 26:01
  SPEAKER_00: And I know this one is uh a little different in that it's it's like I said at the outset, it's very much you know localized, and so some of what we talk about here may not uh be exactly the same in other areas, but uh, you know, I do we have here, so I'm located in Des Moines, Iowa.
• 26:17
  SPEAKER_00: Okay, and uh we have actually a very interesting case going on here where a city, um a suburb of Des Moines has basically sent a property tax bill to what was a couple buildings they're like related to a basketball facility, a couple basketball facility buildings, and they were owned by a nonprofit.
• 26:43
  SPEAKER_00: And in the state of Iowa, my understanding is the nonprofits were not supposed to be taxable from a property tax standpoint.
• 26:48
  SPEAKER_00: However, they basically kind of threw that out and said, no, you're you have a pro for-profit agency that is you know paying the nonprofit, so we're sending you a tax bill for commercial property in a certain spot.
• 27:00
  SPEAKER_00: And so there's this big thing happening right now here where they're like, all right, well, they put it, they put the buildings up for sale.
• 27:06
  SPEAKER_00: They're like, we'll prove to you it's not worth the amount that you guys are taxing us on or whatever, because nobody's gonna buy it.
• 27:12
  SPEAKER_00: And so it's kind of interesting seeing that happen.
• 27:15
  SPEAKER_00: And, you know, even as a homeowner and seeing the property assessments come in and they just keep going up and up and up and up, and nobody's been here to look at the property, even see what it should be worth.
• 27:26
  SPEAKER_00: I I'm just curious when you think of, you know, property tax assessments in general and uh what you've seen, it are they generally just over-assessed in most cases?
• 27:36
  SPEAKER_00: And how do you challenge those?
• 27:38
  SPEAKER_02: Well, there's a there's a couple of different issues there with your Iowa example, because I don't know all the particulars, but you have the legal issue of whether or not the nonprofit should be taxed.
• 27:49
  SPEAKER_02: It sounds like maybe although the nonprofit runs the operation, that it's owned by a private entity or something like that, which may be what the confusion is there.
• 28:02
  SPEAKER_02: But we have a similar situation here where nonprofits are not supposed to, you know, be hit with property taxes.
• 28:08
  SPEAKER_02: But you have the legal issue, uh, which it sounds like what they're litigating, and then you just have the the valuation issue, so to speak.
• 28:15
  SPEAKER_02: You know, we're litigating valuation and property tax appeals all the time.
• 28:20
  SPEAKER_02: We don't file them unless we think that they're over-assessed, so to speak.
• 28:26
  SPEAKER_02: I'll give you some examples.
• 28:27
  SPEAKER_02: Michigan has a little bit of a unique system, which I'm not sure how many other states have adopted because it's such a local thing.
• 28:34
  SPEAKER_02: But generally, when it comes to the assessment itself, in Michigan it's supposed to represent 50% of true cash value.
• 28:41
  SPEAKER_02: So if the assessor thinks your property is worth$2 million, you're supposed to be assessed at a million dollars.
• 28:46
  SPEAKER_02: Assessors in most communities don't have the time to go property by property and do a real valuation as a practical matter.
• 28:57
  SPEAKER_02: The way most of them work here in Michigan, and I'm sure it's not all that different, is they work out of manuals at their desk, which basically allow them to do like a cost analysis of what it would cost to construct the property uh based upon age and condition, how much the it's depreciated in terms of what the status of the property is at the time it's being valued.
• 29:21
  SPEAKER_02: And then they, you know, basically come up with a number.
• 29:25
  SPEAKER_02: Cost approach to me is not a way, is not really a way to appraise property in these types of settings, because at the end of the day, you're trying to come up with a value that someone would pay for it in the marketplace.
• 29:37
  SPEAKER_02: And they could care less what it would cost to reconstruct it and how much it's depreciated.
• 29:41
  SPEAKER_02: They want to know how much money they can generate out of that property.
• 29:44
  SPEAKER_02: A little different with homes, obviously.
• 29:46
  SPEAKER_02: In Michigan, so so we obviously find a lot of circumstances and come people come to us with a lot of circumstances, and this is done on a yearly basis where they believe their property is is uh overassessed uh for business properties, which is what we primarily do.
• 30:04
  SPEAKER_02: Again, we look at you know their operation, their income and expenses, that sort of thing, and try and, you know, internally get a sense of what we think it's worth and make a decision whether or not we can help the property owner.
• 30:15
  SPEAKER_02: And I presume other property tax appeal lawyers in other states kind of operate in a similar fashion.
• 30:20
  SPEAKER_02: What's unique about Michigan is that uh we have like a property, we have a capping property tax system.
• 30:29
  SPEAKER_02: And what that is, is uh several years ago, probably in the uh I'm gonna say 50 years ago, maybe, probably more like 40.
• 30:40
  SPEAKER_02: Anyways, Michigan adopted an amendment to the state constitution whereby as long as you were in long-term ownership of your property, the value was capped year to year.
• 30:55
  SPEAKER_02: So what does that mean?
• 30:56
  SPEAKER_02: I just gave you the example of, you know, if a property is valued at two million dollars, the assessment's at a million.
• 31:03
  SPEAKER_02: Okay?
• 31:04
  SPEAKER_02: That is if that happens upon a sale of the property, whenever there's a sale of the property, there's a complete uncapping to a new value that in theory is related to the new purchase price, although it doesn't have to be.
• 31:18
  SPEAKER_02: Well, what the capping is, is that under Michigan law, as you continue to own the property, past that first year and the second year, the third year, and as long as you own it, your property uh your capped value, which at the time of a sale sale is the same, so the million is a the million is a capped value of a million in the first year, that can only be increased by no more than five percent of the capped value and the five and the five percent is based upon a consumer index consumer price index adjustment.
• 31:53
  SPEAKER_02: So by way of example, if you had a property in Michigan in long-term ownership, in 2025, it could only be uncapped 3.1%.
• 32:04
  SPEAKER_02: In 2026, it can only be uncapped 2.7%.
• 32:09
  SPEAKER_02: Um, and then fast forward, that stays in place for as long as you own the property, which is obviously a benefit to property owners.
• 32:16
  SPEAKER_02: Uh but when that property is sold, it's quote unquote uncapped.
• 32:21
  SPEAKER_02: Okay, whatever that difference is between the assessed and the taxable uh are eliminated, the assessor puts a new value on it.
• 32:29
  SPEAKER_02: And even though you would expect the new value would probably be something related directly to the purchase price, the assessor is not restricted to that.
• 32:39
  SPEAKER_02: They can go lower, they can go higher.
• 32:41
  SPEAKER_02: Uh we see a lot of uncappings where the assessor puts a significantly higher value on the property than what it's sold for.
• 32:49
  SPEAKER_02: So I hope that there's a you know a lot of detail in that.
• 32:52
  SPEAKER_02: I hope you were able to follow it, or if you have any questions about it.
• 32:55
  SPEAKER_00: Yeah, well, that's interesting because that means that the buyers, when you're looking at buying things, you can't just look at prior assessed values and tax, you know, what taxes have been paid historically.
• 33:04
  SPEAKER_00: You've got to understand that if it's gonna be uncapped in that situation, what your taxes going forward might actually be.
• 33:10
  SPEAKER_00: It's not not what it shows.
• 33:12
  SPEAKER_00: You are you are right on with that.
• 33:14
  SPEAKER_02: And I can tell you that every year I get a significant number of calls from out of state buyers who base their determination of what they were gonna pay for the property on what the taxes were, not being familiar with the uncapping system in Michigan, and they're like, woe is me, what am I gonna do now?
• 33:34
  SPEAKER_02: This blows away my whole pro forma.
• 33:37
  SPEAKER_02: And so we get a lot of those calls from people from out of state, even sophisticated people who just, you know, didn't have somebody advising them about the system.
• 33:46
  SPEAKER_02: We also get a lot of calls from people from out of state uh and in-state for that well, wanting to know what they think their taxes are gonna be based upon a certain purchase price.
• 33:54
  SPEAKER_02: So Yeah.
• 33:55
  SPEAKER_00: Are there things that people like landowners or uh, you know, even just real estate owners in general should do from a documentation standpoint?
• 34:05
  SPEAKER_00: Like should they be keeping track of certain information that would help in some of these cases, whether it's, I mean, either eminent domain or property taxes, or maybe it doesn't really matter.
• 34:15
  SPEAKER_00: Are there things they should track?
• 34:17
  SPEAKER_02: Yeah, I mean, valuation is valuation.
• 34:19
  SPEAKER_02: I mean, obviously, if we're looking at putting a value on a property for uh property tax appeal purposes, we're gonna look at the same type of information, income, expenses.
• 34:30
  SPEAKER_02: One of the things that's important in particular in property tax appeals is uh deferred maintenance.
• 34:37
  SPEAKER_02: Uh, if you have a big list of deferred maintenance items that you're gonna have to deal with down the road, from a valuation standpoint, those things need to be taken into account, first and foremost.
• 34:47
  SPEAKER_02: And um, you know, documentation, you know, documentation, rent rolls, leases, that sort of thing, which obviously, you know, good business owners, you know, keep could keep good track of uh as well.
• 34:58
  SPEAKER_02: And just keep on top of it.
• 35:00
  SPEAKER_02: Uh a lot of people, you know, surprisingly, even sophisticated property owners don't really take a close look at their property tax assessments to try and determine on a year-by-year basis whether, you know, whether they are entitled to some relief.
• 35:14
  SPEAKER_00: So usually on these episodes when I have, you know, more of a land development operator on, I'll ask them a question about, you know, what has been their favorite project they've worked on over the years.
• 35:24
  SPEAKER_00: But for you, do you have a favorite case that you've worked on um over the years that kind of stands out?
• 35:30
  SPEAKER_02: So um it was probably quite a while ago, uh, I'm gonna say ultimately about 20 years ago, the city of Detroit was assembling land on the Detroit Riverfront.
• 35:45
  SPEAKER_02: They were reconstructing the waterfront, okay?
• 35:47
  SPEAKER_02: They were building trails, all that sort of thing.
• 35:50
  SPEAKER_02: Um, and this was, if you're familiar with the city of Detroit, the Renaissance Center is like the kind of main development on the riverfront center.
• 35:57
  SPEAKER_02: This was just to the east and almost adjacent to the riverfront.
• 36:03
  SPEAKER_02: It was a property that was undeveloped.
• 36:06
  SPEAKER_02: The city uh offered, I believe, it was a 6.1 acre parcel.
• 36:10
  SPEAKER_02: Uh the city offered about, I think,$11 million for the property at the time.
• 36:16
  SPEAKER_02: It was hotly litigated.
• 36:18
  SPEAKER_02: Circuit court, Michigan Court of Appeals, ultimately the Michigan Supreme Court turned it down.
• 36:24
  SPEAKER_02: But we got a jury verdict in that case of over$25 million for 6.1 acres of land on the riverfront there.
• 36:32
  SPEAKER_02: And today it still stands as the highest eminent domain jury verdict in the state.
• 36:37
  SPEAKER_02: So if you're asking me about my favorite case, yeah, uh, and one I've always I still get asked questions about, it's that one.
• 36:44
  SPEAKER_02: And there was a pretty sophisticated court of appeals opinion, sort of like outlining uh everything that happened, this case, and talked about all the different things that were done.
• 36:53
  SPEAKER_02: So that's uh uh I've had a lot of fun cases, interesting cases, but that's one that really, really sticks out.
• 36:59
  SPEAKER_00: Do you ever get cases?
• 37:00
  SPEAKER_00: Uh, you know how you had referenced some when we first started and you're kind of laying out the picture of all the changes that have happened in eminent domain over the years, and you're referencing these other cases that happened.
• 37:12
  SPEAKER_00: Do your, I mean, do you ever wonder if your cases are getting referenced by other people?
• 37:15
  SPEAKER_00: And I would imagine this might be one where people are looking at that when they're doing their own cases.
• 37:19
  SPEAKER_00: Well, it's as I said, it's a published case.
• 37:21
  SPEAKER_02: So, and there's a lot of there's a lot of technical issues in there that the court had decide about rulings that the trial court made, evidentiary rulings that the trial court made.
• 37:31
  SPEAKER_02: So it's pretty frequently cited.
• 37:33
  SPEAKER_02: It's I I have a handful of cases that get cited actually pretty frequently, uh whether it be by other lawyers or in opinions.
• 37:42
  SPEAKER_02: Or, you know, when you when you look at like statute books, which not many people look at books anymore, but they give you citations to cases that are related to that particular statute.
• 37:52
  SPEAKER_02: So, you know, we see our cases sometimes show up in that.
• 37:55
  SPEAKER_02: Um, so yeah, and uh, you know, I've I've written a fair amount of things and I've spoken a fair amount over the years.
• 38:02
  SPEAKER_02: So I do get calls from people, you know, asking me questions about something I wrote, which hopefully you remember, and uh or even about a talk that I had or something like that.
• 38:12
  SPEAKER_02: So nice.
• 38:13
  SPEAKER_00: Well, that's pretty cool.
• 38:14
  SPEAKER_00: Well, let's uh shift into the last segment here, which is the lightning round.
• 38:17
  SPEAKER_00: So I just have five questions, all a lot of the same topics we already covered, so we might have some overlap here.
• 38:22
  SPEAKER_00: But uh first one for you, what's the most misunderstood part of property tax appeals?
• 38:28
  SPEAKER_02: I think in Michigan it's that people just assume that, you know, whatever they paid for a piece of property is going to be what it's assessed at.
• 38:36
  SPEAKER_02: Also, I think people think that assessors actually really go around and appraise each property individually, look at them, uh, et cetera.
• 38:43
  SPEAKER_02: That's not that's not how it works.
• 38:45
  SPEAKER_02: And to their defense, it would be impossible to do, particularly in like a big city.
• 38:49
  SPEAKER_00: All right.
• 38:50
  SPEAKER_00: Second one, what's the most important trait in a good negotiator?
• 38:54
  SPEAKER_02: Obviously, an understanding of the rules, you know, willing to take a risk when you stake out your position.
• 39:00
  SPEAKER_02: So and also having a good feel for who you're dealing with.
• 39:04
  SPEAKER_02: You know, in my business, uh, we deal with a lot of the same lawyers at the same time because they're candidly, there aren't a lot of eminent domain lawyers in the state, and there's a limited number of property people who specialize in property tax appeals.
• 39:17
  SPEAKER_00: All right, third one.
• 39:18
  SPEAKER_00: What's one thing you wish more developers understood about attorneys?
• 39:22
  SPEAKER_00: We're there to help.
• 39:24
  SPEAKER_02: I hope people understand that.
• 39:26
  SPEAKER_02: And um, you know, our our practice is in large part performance-based.
• 39:31
  SPEAKER_02: If we don't perform for you, then we're not making any money.
• 39:35
  SPEAKER_02: We are very selective in what we take on because we want to make sure we can provide meaningful relief to the client and also obviously earn a earn a fair fee for ourselves.
• 39:44
  SPEAKER_00: All right, fourth one.
• 39:45
  SPEAKER_00: What's the best lesson you've learned from litigation?
• 39:49
  SPEAKER_00: That that's a tough one.
• 39:50
  SPEAKER_02: You have to have a thick, a thick uh shell, so to speak.
• 39:56
  SPEAKER_02: You have to be willing to listen to people, stay calm, you know, even in the heat of battle, and be in it for the long run.
• 40:04
  SPEAKER_02: Because litigation, typically speaking, is not a fast process.
• 40:07
  SPEAKER_00: All right, last one.
• 40:08
  SPEAKER_00: What's one piece of advice for someone buying their first real estate property?
• 40:13
  SPEAKER_00: Do your due diligence.
• 40:15
  SPEAKER_02: Make sure you have someone, you know, if you're not a particularly if you're not like a sophisticated real real estate person, make sure you're working with someone uh who knows what the due diligence is.
• 40:24
  SPEAKER_02: Find out all the information you can about the property.
• 40:27
  SPEAKER_02: If it's income producing, you want to look at income and expense information in advance.
• 40:32
  SPEAKER_02: You want to make sure you inspect the property so that you know the, you know, you know whether or not there's any defects that you should be concerned with.
• 40:39
  SPEAKER_02: You know, most transactions ultimately close as is.
• 40:42
  SPEAKER_02: So you want to do your, you know, due diligence well in advance of any sort of closing.
• 40:47
  SPEAKER_00: All right.
• 40:48
  SPEAKER_00: Well, what is the best way for people listening in to uh connect with you, Jerry, and also learn more about your firm and you know, maybe they want to hire you if they're in the state of Michigan or maybe you, you know, wherever you uh operate.
• 41:01
  SPEAKER_02: So people can reach out to me at my email, which is J Pesick, J E E-S-I-C-K at W Raw.com.
• 41:14
  SPEAKER_00: All right, perfect.
• 41:14
  SPEAKER_00: So those of you listening in, if you look down in the description for this episode, you'll see a link there to the show notes page.
• 41:20
  SPEAKER_00: On the show notes page will be Jerry's email, so you can click through from there and uh, you know, make contact with Jerry.
• 41:26
  SPEAKER_00: Uh Jerry, really appreciate you hopping on here.
• 41:27
  SPEAKER_00: I I learned a lot.
• 41:28
  SPEAKER_00: This was this is something, again, we've never really talked about before.
• 41:31
  SPEAKER_00: So a lot of uh new topics for our audience to hear.
• 41:34
  SPEAKER_02: Yeah.
• 41:34
  SPEAKER_02: And people can also feel free, by the way, to uh check out our firm website, which has my bio on it.
• 41:39
  SPEAKER_02: That's wwrplaw.com.
• 41:42
  SPEAKER_00: Perfect.
• 41:42
  SPEAKER_00: Okay, I'll throw that on the show notes page as well.
• 41:45
  SPEAKER_00: All right, guys, that's all for this episode.
• 41:47
  SPEAKER_00: If you're not already subscribed, please click that button.
• 41:49
  SPEAKER_00: We'd love to have you back for the next one.
• 41:51
  SPEAKER_00: Otherwise, we will talk to you all next week.
• 41:54
  SPEAKER_00: Thank you, Ryan.