Wilmington City Council has approved nearly a half-million dollars in eminent domain settlements for the public-private River Place project. In the most costly instance, it seems council may not have been informed by city staff of the financial risk before they voted to take private property.

WILMINGTON — When City Council voted to use eminent domain to take land behind a downtown property for the public-private River Place project, city staff were aware the cost could be much higher than initially estimated — about ten times higher. The question is, did anyone inform city council of this risk before they voted on the issue?

It seems like a simple question. But getting a simple answer has not been easy.

The issue stems from the use of eminent domain to take the rear portion of the property at 255 N. Front St., the ‘Waffle House’ building. The city initially offered $24,565 for a slice of the property to be used as a utility easement. As construction on River Place progressed, city staff determined that the entire area behind the behind would be needed, and the city moved to take it outright (a ‘fee simple taking’). The city offered an additional $16,425, bringing the total offer up to $40,990 — and in return taking all of the property behind the building, essentially up to the rear wall.

Property owners disagreed with the city’s assessment, arguing that the loss of potential property uses — including a rear entrance, a future additional grease trap that would allow a second kitchen in the building, and the potential to relocate an interior staircase to the back wall, would have a much greater impact on the property value.

An attorney for the property owners issued a counteroffer: $300,000.

It wasn’t a random number: the additional $260,000 was based on a risk assessment the city performed for the initial easement in September of 2016. The assessment noted the potential financial risk if the building owners lost the use of the rear portion of the property. City staff had this assessment for over a year before the second, larger land taking, which council voted on in February 2018.

Related: Wilmington pays $300,000 in River Place eminent domain settlement, over tenfold the estimated cost

But during the public presentation to City Council, there was no mention of the risk assessment, nor was it included in the supporting documents. Further, the taking was combined with two other eminent domain actions and all three were voted on together. There was no discussion of risk or overall cost.

City officials confirm that council was informed of the “key points” of this assessment, but stopped short of specifically stating they were told about the $300,000 risk. The city also declined to say when, exactly, council was informed, and could not clarify whether it was before or after they voted on the second, larger taking.

Voting for eminent domain

To date, the city has approved nearly a half-million dollars in eminent domain settlements with the owners of at least four properties along North Front Street to allow utilities and construction access for River Place.

It’s worth noting that these eminent domain land takings were done to facilitate both the public and private aspects of River Place.

The supporting documents for the ordinance that City Council voted on states the move “involves the condemnation of the property necessary to further completion of construction of the Water Street Parking Deck which will provide significantly needed parking to support the needs of surrounding community while improving a deteriorating parking structure.”

However, the Waffle House eminent domain — and subsequent settlement — was primarily for CFPUA utilities, needed for the private residential and commercial aspects of the project. Despite that, the settlements were born solely by the taxpayers; city officials confirmed that East West Partners, the private developer of the project, had not contributed any money to defray the settlement costs, nor were the settlements covered by the city’s insurance.

In each of the eminent domain cases, City Council approved initial easements without knowing the final cost; appraisals were performed after the public vote. In the Waffle House case, for example, council voted for the easement taking on August 16, 2016. The appraisal wasn’t completed until several weeks later, on September 5, 2016.

In each case, the city settled for higher than its initial assessment, although to varying degrees. For the property at 261 N. Front St. the city settled for around $46,000, about 50% more than its initial $31,000 offer. For the fee-simple takings behind Front Street Optometric and Chadsworth’s Columns, the city ended up settling for $73,000 and $69,000 respectively, slightly less than double its initial offers.

In the Waffle House case, the increase was much steeper.

It’s further worth noting that, while in many eminent domain cases council isn’t aware of the estimated cost, in the Waffle House eminent domain case it was actually the second time the city had taken property. Because the city returned to the property, which it had already assessed, there was already a risk assessment on the books.

How the fee-simple taking was presented

On February 6, 2018, City Council was set to hear three separate resolutions, one for each of the properties. In each case, the city was moving from an easement to a fee-simple taking.

Deputy City Manager Tony Caudle presented all three resolutions together, calling them “remarkably similar” and telling council the only difference was the amount of square footage being taken. (You can watch Caudle’s presentation here, beginning at the 29:30 mark.)

However, there were key differences.

For the Chadsworth’s Columns and Front Street Optometric, the city needed land temporarily, for demolition and construction access. While the city ultimately opted to permanently purchase the land, as part of the settlement with Front Street Optometric, the city will grant an easement back to the property owner once River Place construction is complete (a similar agreement is expected to be filed with the estate of the Chadsworth’s Columns owner). The property owners will then be able to use their property as a private parking lot as they had before construction.

For this reason — the city was effectively only taking the land for several years — the settlement was less than with the Waffle House building, where the city was taking land permanently for water and sewer utility lines.

Caudle did not mention this difference to council during the public presentation. Caudle also omitted that the city’s initial appraisal including an acknowledgment that proximity damages could be around $300,000.

During the meeting, Caudle confirmed with City Attorney John Joye that council could consider and vote on all three eminent domain resolutions collectively.

According to Joye, “On February 6th, 2018 Deputy City Manager (DCM) Tony Caudle explained the above changed circumstances to City Council and asked that they authorize the condemnation complaint to be amended up to the greater taking. The DCM did not specifically address the 2016 appraisal at that time. Rather, he stated that the amount due the owner was ‘to be determined’ and that an appraisal was underway.”

Joye noted that the new appraisal was needed as the original was “stale and no longer accurate to the taking,” since the ‘taking date’ and ‘footprint’ had both changed.

“The DCM appropriately informed Council that an appraisal was underway.  This was the same process that was followed originally, in 2016,” Joye said.

Council voted 4-1 in favor, with Councilman Paul Lawler as the sole opposing vote; Lawler opposed the use of public funds in the River Place development, and has consistently voted against moves related to the project. Councilman Kevin O’Grady and Mayor Pro Tem Margaret Haynes asked to be recused (O’Grady recused himself because he has contracted a unit in the River Place condo; Haynes has not specified the reason for her recusal.)

When was council informed?

After emails to city council about the issue were sent, Joye responded on their behalf (noting that council members might or might not choose to comment further). Joye wrote:

“In the days and months that followed, various city staff spoke with members of City Council often, in both public meetings and in individual conversations. City staff and City Council maintain a general open dialogue and freely exchange information on a plethora of city activities and projects. The Riverplace project was no exception. The City Manager, the Mayor, and I are all fully confident that Council was aware of the key points of the 2016 appraisal,” Joye wrote.

However, Joye’s response didn’t indicate when council was made aware (you can read his complete response at the end of this article).

City Council discussed the settlement with the Waffle House property owners in closed session during an agenda briefing on November 5, 2018. All council members were present and unanimously approved the settlement, according to meeting minutes. After several discussions with city staff, it remained unclear whether council was informed of the potential financial risk of the fee-simple taking at the Waffle House property.

City spokesperson Malissa Talbert said she could only confirm “globally” that council members were informed “at some point prior to the November, 2018 vote” to approve the settlement.

The settlement, which prevented the issue from going to trial, was of course after the vote to take the land at the Waffle House property; at this point, the damage was essentially done.

The question remained if council knew about the risk before the vote to approve eminent domain. Talbert said she could not confirm whether or not council members were informed when they voted for the fee-simple taking. The city could not provide emails or other documents indicating when council was informed of the risk.

Several days after receiving Joye’s response, Councilman Neil Anderson also responded; he was the only council member to do so.

“This was so long ago…and there have been numerous unexpected snags we have run into trying to shoehorn this generational project into the heart of downtown, most surrounding moving or not being able to move utilities. I cannot recall for sure, [I] would need to go back and read minutes,” Anderson wrote. “I do recall generally that once the contractor started to implement the plans working with CFPUA it became clear that we were going to need a much greater easement (so ownership made better sense) to get the water and sewer to and from the project. Considering the level of investment and risk already involved in this greater, this additional amount was incremental at best.”

City Attorney John Joye’s complete response:

I am responding to your October 4th email on behalf of City Council. Individual members of Council may or may not choose to comment further.

City Council authorized the condemnation of 255 N. Front Street on August 16th, 2016. The appraisal for that taking was completed on September 5th, 2016. The condemnation was for a permanent easement covering 429 sq ft. It was filed on September 26th, 2016 which established the date of taking.

In the days and months that followed, various city staff spoke with members of City Council often, in both public meetings and in individual conversations. City staff and City Council maintain a general open dialogue and freely exchange information on a plethora of city activities and projects. The Riverplace project was no exception. The City Manager, the Mayor, and I are all fully confident that Council was aware of the key points of the 2016 appraisal.

In early 2018, it became clear that the project’s utility needs were greater than expected. A permanent easement was not sufficient. The City needed complete (Fee Simple) ownership of the property instead of a mere permanent easement. Also, in the case of 255 N. Front Street, over 50% more square footage was required (677 sq ft vs 429 sq ft).

On February 6th, 2018 Deputy City Manager (DCM) Tony Caudle explained the above changed circumstances to City Council and asked that they authorize the condemnation complaint to be amended up to the greater taking. The DCM did not specifically address the 2016 appraisal at that time. Rather, he stated that the amount due the owner was ‘to be determined’ and that an appraisal was underway.

An update to the 2016 appraisal was needed because the law requires that the compensation to be paid to the owner must be the difference between the value of the property immediately before the taking and the value of the property after the taking. Amending the condemnation suit to fee simple both changed the taking date and enlarged the footprint of the taking. Thus, the 2016 appraisal had to be updated as it was stale and no longer accurate to the taking. The DCM appropriately informed Council that an appraisal was underway. This was the same process that was followed originally, in 2016.

Staff negotiated with the property owners over the next several months. The owners were ably represented. A number of issues related to the taking were vigorously discussed, of which, the grease traps were only one. Ultimately, City Council fully vetted and discussed the proposed settlement, including the appraisal and the owner’s issues and contentions, in closed session on November 5th, 2018. At the conclusion of that closed session, City Council reconvened in open session and voted to approve the settlement.

Send comments and tips to Benjamin Schachtman at ben@localvoicemedia.com, @pcdben on Twitter, and (910) 538-2001