Rail Taking Valuations In A Flat To Declining Market

Sean Hao at the the Honolulu Advertiser reports "Land prices for Hawaii rail route jump $100 million since 2006," with the lede: "Honolulu real estate prices are expected to fall over the next three years, but the estimated cost of acquiring land to build Honolulu's elevated commuter train is going up."  Indeed, the City's estimate of the cost of aquiring land has more than doubled, from $70 million to more than $160 million:

To be sure, $160 million to $170 million is a fraction of the overall estimated $5.4 billion cost of the project. However, the more than 128 percent rise in projected real estate costs highlights concerns raised by critics and others that the city's financial projections for the project are unrealistically low.

The increase in real estate costs "seems counter-intuitive," said Robert Thomas, managing attorney for the Pacific Legal Foundation's Hawaii Center, which lobbies for property owner rights. "That seems odd. If anything, property values are flat. That either says they grossly undervalued the properties before or that they're adding more things (to the budget)."

According to the report, Honolulu real estate values are expected to decline through "at least 2011," citing a University of Hawaii study. The timing of acquisition, as the report notes, is entirely up to the city:

The city said it will offer owners fair market value based on an appraisal. However, the timing of the purchases is in the city's hands. That has some property owners worried.

Jim Frierson, who operates Island Pool & Spa on Kona Street, has known for at least three years the city may need to buy his property to build the rail. That has limited his ability to sell the property, which has an assessed valuation of about $5.7 million, he said.

"Anyone buying it would essentially be gambling on the train not being built," Frierson said. "It would be very hard to make the argument that the value of the property would go up in the future."

Meanwhile, Frierson said he fully expects property values to go down at least in the near-term future — a situation that favors the city.

. . .

At least one property owner is ready and willing to sell property to the city. Beverly Rodrigues owns a single-family home on Dillingham Boulevard that's slated to be purchased to make room for a train station. She said she expects the city to offer a fair price for the home.

"I'm not concerned about it," said Rodrigues, who lives in Pacific Heights. "I'm really for this rail system. If they're going to take my property, or our property, I have no qualms with that."

The Pacific Legal Foundation's Thomas, said property owners can expect the city to drive a hard bargain when it comes time to buy needed lands.

"Historically, government offers are low," he said. "My guess is there's not going to be any difference now.

"The city's position is that they are protecting the taxpayers' wallet. They're not in the business of saying let's give you a little extra because of what we're doing to you."

Property owners who expect the city to appraise their property and pay compensation in line with the owners' expectations may be in for a rude surprise when the city's offer comes in.  See Myth #4 in our debunking of Myths About Hawaii Eminent Domain Law, which points to a post by Professor Gideon Kanner about whether condemning agencies make reasonable offers.  See also this more recent post by Professor Kanner, about an agency that eventually settled a case for more than double its original offer, and this post about a settlement nearly four times the original valuation.