PLANNING AND ECONOMIC DEVELOPMENT COMMITTEE
WHEREAS, the Duluth economic development authority (DEDA) commenced an eminent domain action in 2005 to permanently acquire air rights over property owned by the American Voyageur Motel, Inc., and to temporarily acquire the entire property for construction for the development of the First Street Medical District Parking Ramp (the ramp), which action is entitled “Duluth Economic Development Authority, Petitioner v. American Voyaguer Motel, Inc., et al., Respondents” and is filed in St. Louis County District Court as Court File No. 69DU-CV-05-532 (the condemnation); and
WHEREAS, DEDA has transferred its interest in the property and in the
agreements related thereto to city and city has undertaken the liability for
acquiring the property for the ramp and for its operation, including
responsibility for paying the award of damages and costs of the condemnation;
RESOLVED, that the city attorney is directed to appeal the award of damages in the above condemnation case.
STATEMENT OF PURPOSE: This resolution directs the city attorney to appeal the commissioner’s award in the Voyageur Motel air rights condemnation.
This condemnation action arose out of the construction of the First Street Medical District Parking Ramp (the ramp) project as part of SMDC’s First Street Clinic expansion project. As part of the development of the clinic project, it was necessary to build a parking ramp adjacent to the new clinic building to provide parking for the new patients and employees the project was expected to result in. The clinic was expected to require at least 400 spaces for patients and staff. As this project developed, part of the spin-off was the new Sheraton Hotel project at the northeast corner of Third Avenue East and Superior Street which would need up to an additional 140 spaces. With some allowance for general public parking, the target number of spaces was approximately 600.
As the project was an economic development project, DEDA was the lead agency for the acquisition of property and the design and construction of the ramp. DEDA with the assistance of SMDC managed to acquire all of the land needed from the ramp project by acquiring the upper 1/2 of the block below First Street between Third and Fourth avenues East with the exception of the four lots owned by the Voyageur Motel which was used principally for motel parking at night and rental parking during the day. Because the motel has more rooms than it has parking spaces on its Superior Street property, it was unwilling to sell its First Street property for the project. A number of approaches were discussed with the owner but DEDA was unable to reach an accommodation with the Voyageur. Finally, in an attempt to minimize impact on the motel while still being able to proceed with the development of the First Street Clinic project and the ramp, DEDA, with the council’s approval, determined to acquire only the air rights over the parking lot, leaving the Voyageur with the use of the ground for motel parking.
DEDA obtained an appraisal of the air rights in the amount of $107,000 and paid this amount into court as part of the process of being able to take control of the property. This did not include some unknown costs such as the value of the temporary taking of the parking level during the construction period which was of unknown duration. It also did not include the cost of replacing two equipment sheds on the property because the specifications of the replacement structure was not known.
At about this time, the city determined that it would be more financially beneficial for the city to take over the financing and construction of the ramp project and so DEDA transferred all interest in the property and project funds to the city and the city assumed responsibility for the construction and financing of the ramp.
Once the ramp was completed, it became practical to assess the final value of the property interests being taken. Both the city and Voyageur retained appraisers to prepare appraisals of the value of the temporary and permanent taking. The city’s appraiser came to the conclusion that the value of the taking was $249,000. The appraiser for Voyageur came to the conclusion that the value was $563,500. The difference between the two appraisals arose out of differences in the value of the air rights taken.
A hearing before the condemnation commissioners was held on February 28 and 29, 2008. The commissioners awarded damages in the amount of $545,640.
There was substantial agreement between the two appraisers on the methodology for determining the value of air rights. It is the opinion of the city attorney’s office that the commissioners erroneously applied the valuation methodology by failing to take into account the city’s/DEDA’s increased cost of constructing additional parking which had to be built in the air rights to replace that which otherwise could have been constructed more cheaply on the surface of the Voyageur property. Therefore the city attorney’s office recommends that the city appeal to district court for a “trial de novo” to create an avenue to address this issue.